Economist Eddie Cross says the Zimbabwe Gold (ZiG) will regain its value if the government increases the flow of hard currency to the interbank market and allows banks to sell the currency without restraint.
Writing on his blog in which he warns central bank governor John Mushayavanhu that the ZiG will be doomed if he continues with his present stance on the new currency, Cross says if this does not satisfy demand then the central bank should increase the liquidation threshold until the currency stabilises.
“I would go the whole way in this process until the value of the ZIG is restored to about 12 to 1 against the US dollar in the market and then start buying hard currency off the market at 12 to 1 and putting the currency into national reserves. Even better would be to take this currency and buy gold, hold our reserves in gold rather than paper dollars in electronic form,” he writes.
“I would convert the national budget to ZIG in its new form and make all taxes payable in ZIG. Eventually you could de-dollarise and use the ZIG as the sole means of exchange. Leave free funds in Nostro accounts and allow owners to use these funds at their discretion. Sorry to be so blunt John, but it is the only way to go forward.”
The ZiG was introduced in April at 13.5:1 but was devalued last month to 25:1. It was trading at nearly 27:1 today but the black market rate is down to 50:1.
Full blog:
I have a deep respect for the intellectual and institutional capacity of our Reserve Bank. That is based on what I know of the new man on the block and his staff at the Bank. But I listened to him carefully last week when he defended his position on the new currency. He was emphatic – what we are doing is working and will work. The ZIG is here to stay!
I disagree. If you stay your course Mr Governor, your new currency is doomed, and more quickly than you think. I was at breakfast a week ago with some major figures in the mining industry. They were recounting that since April, they had been getting ZIG denominated treasury bills as payment for the 25 per cent of export earnings that they were selling to the Bank. Two-year TBs at 6 per cent interest.
Our Exports are running at a US$1 billion a month. So, 25 per cent liquidation into local currency involves about US$250 million a month or US$3 billion a year. For exporters this translates into ZIG17 billion over the past 5 months. That week the Governor had devalued those TBs by 84 per cent – wiping out ZIG 14 billion with the stroke of a pen. But that represents a gross deduction from the earnings of all Exporters. At the same time, it gave the Ministry of Finance access to US$1,250 billion to use as it deemed fit, now devalued by 84 per cent.
Great for the Secretary for Finance who must look after the affairs of Government – cheap currency for anything they might want. What happens next is that they announce an increase in Civil Servants hard currency allowances, in complete contradiction to the stated policy of dedollarisation. But it’s not good economics or even business, in fact it’s the very opposite.
Continued next page
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