What are we worth?
This morning I had breakfast with three friends and we were charged at the rate of 115 to 1 for our food which was priced in US dollars. Later I had coffee with another group of friends and the rate charged was 120 to 1. On the auction that week, the weighted average rate was 84.60 to 1. Exchange rates are important as they determine price levels and the value of our incomes and savings.
When I first started work in 1957, the rate of exchange for the Rhodesian Pound against the British Pound was 1 to 2.5. My salary as a farm Assistant was small, but I could buy quite a lot, even a small car after 6 months. At Independence in 1980 the local dollar was worth 2 to 1 against the United States dollar and again I could live very well on my salary in local currency which had real value. It was taken for granted that our currency was stronger than the international currencies in which we traded. In fact, we were proud of the fact although I thought as an economist and businessman, that we should rather have a weak currency and build up our reserves of hard currency for a rainy day and to encourage exports.
After Independence we maintained a strong local currency for a long time but gradually the foundations of fiscal prudency and sound State management of our affairs began to undermine the local currency. The crunch came in 1997 when the State paid out Z$3,6 billion to war Veterans and entered the war in the Congo to remove Mabuto and replace him with Kabila. The combined cost to our economy led to an immediate and catastrophic collapse of our exchange rate to 12 to 1. In the following decade we were to see our currency simply go down the tube and by 2008, a billion local dollars could not buy a loaf of bread.
Even today, I do not know how we survived – many did not of course, many famous firms that had operated here for a century, vanished. To survive we had to break the law and trade in hard currency. But the overall effect of that period was that we wiped out over 100 years of savings and value. In 2008 the total value of all the local currency in circulation was a few cents in real money per capita.
On the 17th February 2009, I sat in Parliament as a new Member just elected, and listened to the Minister of Finance dismantle the economy of the past and usher in a new dispensation that was to transform Zimbabwe in the next 4 years. The speech was short – 15 minutes, but its impact was enormous. He allowed us to trade in the currency of our choice, lifted all controls on the exchange rate and on prices and liberalised the marketing of gold. Inflation collapsed.
In the next four years the revenues to the State grew exponentially – US$280 million in 2009, US$900 million in 2010, US$1,7 billion in 2011, US$2,8 billion in 2012 and our budget for 2013 was US$4,3 billion. In 2012 we liquidated all local currency bank balances for the paltry sum of US$19 million.
The problem then was that we were starting to trade very substantially on electronic platforms. The traditional role of the Banks and currency was changing very rapidly. Cheque books vanished, cash transactions declined to a small fraction of the local market. The Reserve Bank printing machines resumed activity after four years of inactivity – not to produce paper money, but electronic money. Suddenly we were wealthy again – Zimbabweans had bank balances worth US$23 billion. Compare that with the paltry US$19 million in January 2009.
But it was not real money, it was mainly air. When Mthuli Ncube took over the chair of Minister of Finance in 2018, he quickly stated the obvious – our RTGS balances were not real money, it was something else and did not, in any way represent the real value of our currency holdings. I said at the time that if you wanted to know whether our currency was worth US dollars at 1 to 1, just take $1000 bond notes to the Reserve Bank and ask for real USD. If you were paid, then in about 5 minutes the queue outside the Bank would stretch to Mbare.
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