Zimbabwe Dollar Returns

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By Ndakaziva Majaka

There is widespread panic among both businesses and ordinary Zimbabweans alike, after President Robert Mugabe’s ever-floundering government ill-advisedly announced last Tuesday that it was working on “a plan” to use gold reserves to anchor the reintroduction of the much-derided Zim dollar.

The poorly-conceived announcement came as the country is battling severe and worsening shortages of both bond notes and the much-coveted United States dollars — amid fears that the dying local economy is fast hurtling towards the debilitating lows of 2008 when all Zimbabweans became overnight, but pitifully poor “multi-billionaires”.

It also came as economists have recently told the Daily News on Sunday — on the back of the country’s deepening economic crisis — that Zimbabwe’s average income levels are now at their lowest in more than 60 years, with more than 76 percent of the country’s populace having to make do with wretched incomes that are well below the poverty datum line.

In addition, the country’s international standing and sovereign ratings have also plummeted shockingly, resulting in Zimbabwe being classified recently as the poorest country in Africa — amid horrendous company closures and equally numbing levels of unemployment.

In Tuesday’s surprise announcement, State media quoted Mines minister Walter Chidakwa saying that the government was working on “a plan to establish a gold reserve set to anchor the introduction of a local currency”, which would see the resurrection of the dead Zim dollar.

The plan, being modelled around the $200 million Afreximbank facility, which backs bond notes — and whose legal processes were already said to be before Parliament — had the ultimate aim of mitigating the country’s acute liquidity and cash crunch.

“Naturally, in order to support the future introduction of our own currency, you want to have mineral resources that you hold in reserve.

“We have discussed this matter with the Reserve Bank of Zimbabwe and what we are doing now, because most of the gold that is currently held is in private hands, we need to get our own companies operating,” Chidakwa told The Herald.

Chidakwa’s made the comments despite Reserve Bank of Zimbabwe governor John Mangudya consistently saying that market conditions were not right for the return of the Zim dollar anytime soon.

Speaking to the Daily News on Sunday yesterday, former Finance minister, Tendai Biti said Chidakwa’s comments “betrayed” government’s determination to reintroduce the decommissioned Zim dollar.

“I have no doubt that the Zimbabwe dollar is coming back, but it will be coming back in the context of a government that has totally failed to resolve and restore the economic fundamentals that are needed for a local currency.

“I will tell you this for a fact, there is not a single country that has ever dollarised and gone back to its own currency.

“This is because by adopting the United States dollar, there was institutional admission and a vote of no confidence in the Zimbabwe dollar. The trust is just gone,” Biti said.

“These zombies of void reasoning want to introduce toilet paper as money just to save their necks. But the conducive economic fundamentals are lacking.

“I have always said that if the country wants to go back to a local currency it should look beyond the multi-currency system and push for a monetary union within the region, where fiscal and monetary convergence is agreed upon,” he added.

“Firstly, it is beyond absurd to think that you can build $2 billion in gold reserves in this country (as the government has suggested).

“The rest of the world departed from this in the 1970s. So, and for starters, Zimbabweans need to question the ability and madness behind such statements.

“They have simply failed and now want to monetise their inefficiencies. And just how will they buy the gold with 97 percent of the country’s revenues going towards civil service salaries and wages?” Biti said further.

Opposition leader Morgan Tsvangirai’s MDC also warned Zanu PF against rushing the discarded Zim dollar back into the market.

“The Zanu PF regime is a renegade outfit that is capable of doing anything … hence the bankrupt plans to bring back the Zimbabwe dollar.

“Remember, the national economy is comatose and Mugabe and his Zanu PF regime are only concerned about holding onto power.

“These people don’t give a damn about the suffering of the majority of Zimbabweans,” MDC spokesperson Obert Gutu said.

Zimbabwe ditched its worthless currency and switched to the multiple currency system in 2009.

This was after Zimbabwe had gone through one of its worst economic crises in history, which saw  hyperinflation reaching world record figures upwards of 231 million percent in 2008.

The economic carnage led to shortages of fuel and basic consumer goods, amidst untold citizen suffering.

Economist John Robertson also said yesterday that introducing a gold-backed local currency, while attractive on the surface, was not ideal.

“Any currency is only truly backed by gold if it is convertible to gold. There can be something appealing about the idea of a gold-backed currency, instead of intrinsically worthless paper money, otherwise known as Fiat currency, like the Zimbabwe dollar was in 2008.

“However, the problem is that this line of thinking is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system,” Robertson told the Daily News on Sunday.

Zimbabwe is in the grip of a worsening economic crisis which has also witnessed a severe shortage of cash, including the recently introduced bond notes.

Despite injecting more bond notes into the market, and recently increasing their weekly importation of United States dollars by 50 percent, the government continues to battle to stem the acute cash shortages, which have seen desperate Zimbabweans besieging over-stretched banks, as they despairingly try to withdraw their money.

The disappearance of the country’s surrogate currency from the market has also often forced banks to give clients their cash in sackfuls of coins.

It has also seen banks limiting the amount of money both individuals and companies can withdraw, sometimes to as low as $20.

On Friday, bankers finally broke their silence on the matter and confirmed that Zimbabwe was facing a huge financial crisis which required urgent attention by the government.

Addressing delegates at the Financial Markets Indaba held in Harare, Barclays Bank Zimbabwe managing director, George Guvamatanga, said bond notes had vanished from the local market and were now big business in neighbouring countries.

“It’s not yet established, but there could be more bond notes at Park Station in South Africa, and in Botswana, Zambia and Mozambique than we have here in Zimbabwe.

“Someone realised there is an opportunity to sell the bond notes to Zimbabweans living outside the country, who then don’t have to come here and queue to withdraw their money from banks.

“At the moment, it’s easier for us at Barclays to give United States dollars than to give bond notes,” Guvamatanga told transfixed delegates. Daily News