Attempts to calculate the time a Zimdollar deposit was held in the bank account before being offloaded only demonstrate increased concern about Zimdollar velocity.
It is common cause that, as the market seeks to offload the Zimdollar at every opportunity, its depreciation accelerates, escalating price increases. This drives money creation by banks, as well as increased Government borrowings, to accommodate currency depreciation and higher prices.
The 48 percent increase in Zimdollar money supply to $1.95 trillion as at June 30, from $1.32 trillion in March, can be interpreted as accommodative growth, and not the commonly held narrative of running the printing press to purchase the 25 percent surrender money to service external debt.
The excess amount that could have been created from this exercise was mopped up through NNCDs.
The amount in usable balances in the economy, as well as a low Zimdollar loan-to-deposit ratio of less than 40 percent, only demonstrate that the effect of the mechanism to purchase the 25 percent liquidation had limited effects on the money supply.
Now, following the implementation of stabilisation measures, the velocity of the Zimdollar is cooling off.
The recipient of the Zimdollar can afford to keep it for a longer period than before.
In fact, it made sense to keep the money in the local currency when the exchange rate was firming.
There are casualties who lost money by insisting in saving in forex as the best bet despite evidence to the contrary.
On the other hand, over the last three months, those who bet for the Zimdollar have made exchange gains.
What stabilisation measures — which essentially entail seeding the interbank market with forex to drive voluntary liquidation, tightening of Zimdollar liquidity and increasing demand for the Zimdollar by Government — have managed to do is reduce the velocity of the local unit.
As the velocity of the Zimdollar cools off, it has the opposite effect as its increasing velocity, as l demonstrated earlier.
With the current usable balance of $810 billion, a velocity of money of, say, five times has the same effect as usable balances of $4.05 trillion.
If velocity of money reduces to two times, the effect is reduced to $1.62 trillion and so on.
The concomitant effect of reduced velocity of money is lower Zimdollar money supply and stable exchange rate and inflation.
It is, therefore, unsurprising that both annual and month-on-month inflation have dropped to 101.3 percent and -15,3 percent, respectively, in July, from a peak of 175.8 percent and 74.5 percent the previous month.
Clearly, velocity of money is a function of confidence in a currency.
As such, there is need for the Reserve Bank of Zimbabwe (RBZ) and Treasury to redouble efforts to rebuild confidence in the financial service sector in general and the Zimdollar in particular.
There is need to debunk the common belief that the government will always print money with reckless abandon, especially to pay its creditors, mainly contractors. In fact, Treasury has now dealt with issues of lump sum payments to contractors by paying a greater portion of their invoices — up to 80 percent in some cases — in US dollars.
As they say, your reputation precedes you; if the stability holds for the next three to six months, we expect more confidence in the Zimdollar, which supports its durable stability.
It is prudent for the government to underwrite the Zimdollar by continuing to widen its use, especially in taxes, duties, levies and fees payable to the government and its agents.
Even beyond the economy, confidence-building measures are important for the performance of our currency.
By Persistence Gwanyanya for the Sunday Mail. Gwanyanya is a member of the RBZ Monetary Policy Committee.
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