Why the Zimbabwe Exchange rate is running as if there is no tomorrow


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Economist Eddie Cross says Zimbabwe is failing to stabilise its economy because it has created a network of corrupt individuals and organisations that involves decision makers in government and in the private sector and has syphoned off as much as US$120 billion over the past 39 years.

Writing on his blog, Cross says: “We have even invented names for them – ‘Queen Bee’ (why not King Bee’?)’ and called them ‘Cartels’ because they work closely together to protect their activities and wealth”.

He says while the government has made great strides through its transitional stabilisation programme, it is being held back by these corrupt individuals who include senior government officials, right from the President down to civil servants and security forces.

Cross said in Ghana, Jerry Rawlings had to parade corrupt officials on the beach before a firing squad to demonstrate to the nation his determination to end corruption while in China a politburo member was arrested during a politburo meeting and executed “for a crime that we in poor, impoverished Zimbabwe, would regard as petty cash”.

He, however, said Zimbabwe did not have to go that way. The real answer which would be fast and efficient with immediate benefits would be just reintroduce a real market economy – across the board.

“For example, if we introduced a few simple rules to the Interbank Market for foreign currency and created a real, transparent, open market operated by the banks under supervision and insisted that all foreign currency transactions in the formal sector go through that process, I can assure you that the market would establish itself as the determinant of the value of local currencies in all other currencies – just as it does in every other economy in the World,” he said.

“The consequence, would be that the real market determined rate would fall rapidly to where it should be – 3 or 4 to 1 for the US dollar. Many people will laugh at that assertion – just as they did when I said at a Conference of our Accounting Profession where I said that the Bond Note was the strongest currency in the region. Even now it is trading freely at 5 to 1.

“The economic fundamentals, do not in any way, support an exchange rate of 7 or 8 to 1. Last year when the Minister of Finance delinked the local currencies from the US dollar and exposed the myth that we were at 1 to 1, the result was a collapse to 7 to 1 with a quick recovery to 2,8 and 3 to 1.

“What is happening right now, in the absence of a real Interbank Market, which people can respect and trust, is that the majority of trades are behind closed doors among people who want the rate to run because they are making so much money from the process.

“Even the Banks are involved, exporters and the Diaspora love it because they are making money hand over fist. The only people who suffer are those who face the markets and must pay huge premiums on goods and services because no one knows where the exchange rate is going and everyone expects it to continue to climb.

“So simple – we do not need an IMF bailout, we do not need a savior in the form of another Government who will give us hard currency which the thieves in our midst will simply steal, we just need a real open market, run properly. We could do that on Monday and on Tuesday we would be in a different country.

“Then we need to open up the market for fuel and basic foods. Let anyone who wants to import and sell anything go to the Interbank Market, buy the foreign exchange they need and import fuel and sell it on the open market.

“The fuel and food markets are highly competitive and the resulting free markets, with a stable and real exchange rate, would quickly bring about free supply at real prices. Queues would vanish in a few days and the cartels would collapse,” he said.

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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

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