“Unfounded reports and speculation on the re-introduction of the local currency continue to undermine the government’s effort to restore confidence and macroeconomic stability,” Finance Minister Patrick Chinamasa said as he tried to reassure his audience that the Zimbabwe dollar was not coming back.
“Re-introducing the local currency under the current conditions is counter-productive. The current policy focus is on restoring economic confidence which is vital to a sustainable recovery. Thus, the government will continue with policies that create a favourable environment for industry to prosper while at the same time promoting the economic well-being of Zimbabweans. It is therefore the purpose of this note to reiterate that the multi-currency system is here to stay.”
Chinamasa said the Zimbabwe dollar will only come back when there is:
- Sustainable economic growth
- Sustainable current account position
- Industry competitiveness
- Building sufficient international reserves, without which the local currency will be under immense pressure, and
- Restoration of confidence in the banking system and economy.
It was not clear at whom his message was directed- Zimbabweans or foreign investors. What was confusing was that days earlier Chinamasa had said that the introduction of the multi-currency regime in 2009 was to blame for the economic challenges Zimbabwe was facing today.
“The migration from hyperinflation to multi-currency did a lot of damage to our economy. It pitched our cost structure too high and unsustainable. It’s like we devalued the US dollar, where in America a dollar can purchase four cokes, in our case it can only purchase two or one in some cases depending on whether it’s canned or not or where you are buying it from. So, in that sense it means that the cost structure is not sustainable, it basically kills aggregate demand which is very necessary for any economy to function,” he said.
“Secondly, the wage structure is also not sustainable,” Chinamasa said. “The wage structure that the private sector is paying is not sustainable, we are beginning to see the signs now. A lot of companies are six, seven, eight months behind, without paying wages.”
Industry leader Charles Msipa concurred. He said dollarisation had made local goods more expensive and less competitive than imported goods.
“Because we are using foreign currency we are not able to devalue the currency; we do not have the instruments. Use of the US dollar has resulted in products being over priced by about 25 percent. This is a huge impediment,” Msipa, President of the Confederation of Zimbabwe Industries, said.
Even the International Monetary Fund admitted that the dollar was overvalued in Zimbabwe. It said in its review in July that it hoped that “deflation” in the country would “correct the overvaluation in the real exchange rate” but this would require the prices of non-traded goods such as labour and final goods to fall faster than the prices of traded goods and this had not been the case so far.
According to the IMF, Zimbabwe is not likely to reintroduce the Zimbabwe dollar until 1918, and it appears that the conditions that Chinamasa set for the return of the Zimbabwe dollar are not likely to be met in the short-term.
Zimbabwe is therefore trapped in a situation where it is forced to use currencies which it cannot regulate, but wants its products to be competitive, yet it has to rely on the whims of a market over which it has no control.
With industry and the IMF saying the dollar is overvalued, the question is, why is Chinamasa insisting that it is here to stay when he and the country’s central bank have no control over it? It is equally folly to say that the country should switch to the South African rand because it has no control over that currency either.
The plain truth is that Zimbabwe needs its own currency over which it has control. Chinamasa says this would be counter-productive under the present conditions. While this may be true, there is also no way Zimbabwe can create a favourable environment for industry to prosper while at the same time promoting the economic well-being of Zimbabweans under the US dollar regime.
Industry is reeling at the moment. Factories are closing down. Chinamasa has no choice but the problem is that, like his party the Zimbabwe African National Union-Patriotic Front, he is confused.
As Nathaniel Manheru aptly put it in his article: “ZANU-PF: Where winners don’t believe, rule or govern”, ZANU-PF is really behaving like a party that stole the elections because it is failing to govern.
For a party with a three-quarters majority, one wonders why ZANU-PF is dithering instead of governing. Why does a party that sings sovereignty and “we shall never be a colony again” hesitate to bring back its own currency?
Could the problem be what Rwandan President Paul Kagame said recently that: “We tend to seek validation elsewhere, instead of looking to each other to find solutions!”
The value of a currency is really in its people. As former Finance Minister Tendai Biti said, though perhaps sarcastically, we can even use firewood as currency. It is Zimbabweans who matter most. They are the ones who can preserve or trash their own currency. They know how much they suffered when they did so in the 2005- 2008 period. No one wants a repeat of that.
If Zimbabweans do not value their own currency, why should they expect foreigners to? After all, they are the ones who trashed the United States dollar, so why look for a solution outside? And while ZANU-PF is dithering money is flowing out of the country like water from a broken tap. There will probably be nothing left by the time ZANU-PF wakes up.
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