Zimbabwe back on track

Apart from the destruction of all monetised savings, it destroyed debt and left every bank, building society and insurance company completely broke except for physical assets. Eliminating the market for farm land took another US$15 billion out of the economy in the form of collateral assets. One aspect we did not understand at the time, was that we inadvertently gave the US dollar an enhanced value that it did not deserve when we finally settled for the dollar as our main means of exchange. The result, we destroyed the competitive character of our productive economy, only the extractive industries survived.

With the king of all currencies as our main trading vehicle, we became the regions supermarket, importing everything from outside the country, even water in plastic bottles.

When Mthuli Ncube became Minister of Finance in 2018, coming from the rarefied altitude of the Alps in Europe, he quickly identified that we had, in effect, created a new currency for ourselves because we simply did not have enough of the green stuff to go around. He called it the ‘RTGS dollar’. Clever and spot on and we had a mountain of the stuff, 23 billion dollars of it. We thought it was USD and that we were rich, it was a national deception.

The moment he made it unconvertable, the RTGS dollar was adrift in a sea of uncertainty and doubt. Our collective minds went back to 2008 and we all said to ourselves – not again! What the authorities failed to recognise was that not only had we dollarised during the GNU but we had discovered electronic banking and Strive Masiya had brought the ubiquitous cell phone to our streets. Like everything Zimbabweans do, we took to these new tools with great enthusiasm.

When I was in Parliament in 2016, I noted that electronic transactions had taken over all aspects of our trading system and we were transacting a billion dollars a day on average. I made a speech in the House calling for a tax on these transactions and arguing we could replace VAT and PAYE with a single tax of 5 per cent on transactions. What I also noticed was the massive growth of Ecocash, now the largest financial institution in the country.

When the currency began to act in a completely irrational way earlier this year, we took another look at Ecocash and discovered that they had a category of client they call ‘bulk payers’. These were high value individuals and corporates who were transferring billions of dollars to Ecocash and asking them to buy real USD for them – mainly to protect its value. The accumulation of hard currency accelerated in Nostro accounts at Banks until today we have over US$1 billion in local FCA accounts.

It was the activity of tens of thousands of Econet agents on the streets, competing to buy what limited USD was available that was one of the main drivers of the exchange rate. Coupled to a complete lack of confidence in the money system and the demand for hard currency to buy gold for illegal export – again to protect value, this became an avalanche.

Finally, four weeks ago, the President called in the Governor of the Reserve Bank and gave him an instruction to go back to his office and float the local dollar through an auction system. At 15.00hrs the statement came out and a week later the first auction was held. The price came in at half the street rate at the time. In two days, local companies that had applied for currency on the auction and were successful, were paid. The impact on the system was seismic. We are now about to hold the fourth auction and the open market rate has fallen by 20 per cent to about 80 to one, reflecting more accurately the reality of our fundamentals.

Zimbabweans have assumed that because the State has allowed the use of harder currencies for local transactions, that we are re-dollarising in some form or another, that is not true. We are trying to re-establish the value of the local currency because the fundamentals dictate that we should in fact have the strongest currency in the region, not the weakest. It takes a great deal of courage to stick to your guns in a blizzard like this, but if we do, when the sun comes out on the other side we will find ourselves in a different country.

Still a great deal to do, many important issues to tackle, but we are now back on track.

Eddie Cross
Harare, 12th July 2020

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