Where we are now
CZI believes what we are witnessing on the Zimbabwe Dollar (Z$) is tantamount to a bank run on the Reserve Bank of Zimbabwe (RBZ).
Mervyn King, Governor of the Bank of England famously said that it may not be rational to start a bank run, but it is rational to participate in one once it has started.
The material and all the case studies on bank runs point to aggressive actions to restore trust in the institutions affected.
Aggressive, transparent and visible actions are the only way to save the Z$ and stop the bank run.
We are at a point where what to do is just as important as what should not be done.
Mono currency ZWL without international reserves should not be done as the economy is not ready for mono currency.
Foreign currency accounts should not be raided as has happened before with serious consequences of loss of value at all levels of business and society.
Here is what we believe has gone wrong
- The Dutch auction was initially implemented according to the rules of the auction which rules were flouted and this is evidenced by the failure of the auction to settle bids and accumulating backlogs stretching over ten-week periods. This means the auction was auctioning money that was not there. Reports of companies having bids being prorated yet they would have submitted high-rate bids are also an indication the Dutch auction rules which state that the highest bidders get all their allotments was flouted. We published and shared a paper highlighting potential pitfalls which was a comparative analysis of auctions that have succeeded or failed, and we have gone on to do what is in the auctions that have failed
- The result of the above is that we lost the near convergence position that the auction had achieved in the beginning and trust was also lost especially after several promises of clearing the backlog and this is to companies that still trying to find solutions to legacy debt of yesteryear.
- The failure of the auction to stay on track prevented the expansion of the supply side where holders of foreign currency did not
It is important that a balanced approach is taken to bring back the local currency from the brink of rejection that it faces now in the face of exchange rate instability and increasing inflation.
We must also by all means avoid the rushed decision to prematurely introduce a mono currency as the consequences of such are known from the recent past.
This approach should take the local currency to the point where it is absolutely trusted by both Government and Citizens as the preferred medium of exchange ahead of any other currency and as the most credible store of value of any savings deposited in any commercial or savings bank under RBZ supervision.
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