Futility Of Zim Dollar Laid Bare

WHEN United States economist Steve Hanke wrote a paper outlining how difficult it is for a country to bring back its currency and defend its value after dollarisation in its various forms and shapes, some Zimbabwean government apologists dismissed him as an alarmist and out of touch with reality.

 Now after several episodes of interventionist measures and command-style policies which evoke yesteryear trepidations, the government’s immediate plan to bring back the Zimbabwe dollar has all but collapsed, as rising levels of inflation and low output in the real sector continue to blight any prospects of defending the value of the local unit.

Faced with unprecedented economic situation characterised by record inflation, which officially reached 231 million percent in 2008, Harare was forced to ditch the Zimbabwe dollar in 2009 for a basket of currencies mainly dominated by the greenback.

 From 2009, the US dollar became Zimbabwe’s anchor currency until 2015 when the monetary authorities introduced bond notes, a fiat currency which was brought into circulation as an “export incentive”.

 In 2019, the government officially abandoned the multi-currency system for the sole use of the Zimbabwe dollar. The outbreak of Covid-19 during the same year prompted the monetary authorities to allow the use of “free funds”, which simply meant bringing back the US dollar.

 Since then, everyone has been demanding the greenback as payment — from roadside candy sellers to government departments.

Before that, the authorities announced plans to liberalise the foreign exchange market after a few years of managing the exchange rate which saw the Zimbabwe dollar being overvalued. Economic analysts who spoke to The NewsHawks this week said the de-dollarisation project has been shelved, as Harare parks its sovereignty for economic wisdom.

“The move towards full de-dollarisation has been abandoned,” Prosper Chitambara, as economist with the Labour and Economic Development Research Institute of Zimbabwe, said.

As the economy wobbles, many Zimbabweans are beginning to draw parallels between what happened in 2008 and now. While rising inflation remains the common denominator, this time around, unlike then, shops are well[1]stocked, but most consumers lack the buying power.

 “I would not blame Zimbabweans for making such comparisons,” Victor Bhoroma, a Harare-based economic analyst, said.

Zimbabwe’s extreme and uncontrollable inflation made it the first — and so far only — country in the 21st century to experience hyperinflation. Gift Mugano, a professor of economics, based in Harare, said Ncube’s statement was nothing new.

“The public need to know that the minister of Finance did not announce any new measure,” Mugano said.

 Statutory Instrument 127, Mugano said, became a nullity after President Emmerson Mnangagwa’s directive instructing business to use the interbank rate.

 Morgan & Co, a local brokerage, said the issuance of gold coins, which critics say is an admission that the government had failed to defend the value of the Zimdollar, follows from the authorities’ aim to tap into nostro reserves.

 In his seminal work, Phillip Cagan defined hyperinflation as beginning when monthly inflation rates initially exceed 50%. It ends in the month before the rate declines below 50%, where it must remain for at least a year.

Official figures show that Zimbabwe entered the hyperinflationary era in March 2007 and the period ended when the nation abandoned its currency in 2009. Official figures show that at Independence, annual inflation was 5.4% and month-on[1]month inflation averaged 0.5%.

The largest currency denomination was ZW$20, and the Zimbabwe dollar was the most wide[1]ly used currency — involved in more than 95% of transactions. Officially, US$1 bought ZW$0.647, and real GDP in 1980 grew 14.6% over 1979 levels.

 Research shows that on a per capita basis, real GDP (purchasing power parity-adjusted) in 2005 prices equaled US$232; the unemployment rate was 10.8% in 1982.

Experts say hyperinflation, which rapidly destroys a currency’s value, is fundamentally a monetary phenomenon. NewsHawks