These measures include limiting cash withdrawals and the BACOSSI family of interventions among others. They are not working.
Inflation is increasing at an increasing rate and the hapless ordinary populace continues to suffer.
It is high time Zimbabwe fully dollarises officially or semiofficially.
Dollarisation involves the inhabitants of a country using foreign
currency in parallel to or instead of their domestic currency. The term
is not only applied to usage of the United States dollar, but also
generally to the use of any foreign currency as the national currency.
Semiofficial dollarisation is when foreign currency is legal tender yet
it plays second fiddle to the domestic currency. When a country seizes
to issue its own money, this becomes official dollarisation. As it is,
Zimbabwe has carried out the first steps towards semiofficial
dollarization, by introducing the concept of FOLIWARS. This is hardly
enough. More stable currencies such as the Rand and the United States
dollar need to be used to pay salaries and for day to day transactions.
An argument put across by a number of people is that, dollarisation
should not take place because most people do not earn foreign currency,
so they would not be able to buy. The stark truth is that most products
in Zimbabwe are already being sold in foreign currency.
The Zimbabwe dollar price tag is only a front for the underlying
foreign currency price. If you walk into a spare parts shop and ask for
a quotation, the attended punches some numbers and then quotes you a
Zimbabwe dollar price. Two kilograms of sugar cost US$2 or 20 Rands.
A shop selling in Zimbabwe dollars will quote enough to be able to buy
this foreign currency during or at the end of each day. What this
entails is that one actually pays more using Zimbabwe dollars since
shop owners put a premium on prices in case rates move upwards. As
such, people pay more if they buy goods denominated in Zimbabwean
dollars.
The current situation is only benefiting foreign currency dealers and
those who can access foreign currency at the ridiculously low official
exchange rate for resale. The fact that not all shops have licenses
allowing them to sell in foreign currency means people have to covert
foreign currency into local currency for day to day purchases. Dealers
charge commissions for their ‘services’. This is so lucrative that
places such as Copa Cabana, Ximex mall and Roadport, are always crowded
with ever-increasing hordes of dealers with wads of high denomination
notes. Dollarisation will do away with the need to convert money, and
as such remove these middlemen.
Most people are now paying their employees in ‘kind’. This involves the
use of fuel coupons and groceries which are a better store of value
than the Zimbabwean dollar as they are proxies for foreign currency.
The usual practice is to fix the number of coupons and quantities of
groceries and not the underlying US dollar value. A person who was
entitled to ten twenty litre coupons could sell them for three hundred
United States dollars. With the fall in world fuel prices, only one
hundred and fifty dollars can be realized from the same quantity. This
translates to a fifty percent reduction in earnings. Any reduction in
the price of the commodity results in the worker getting less. If these
salaries were paid in foreign currency, the worker would still be able
to maintain his or her earnings. Of course there is the likelihood of
the prices of fuel going up. I would be more comfortable with a
situation whereby one gets remunerated in foreign currency, then
decides whether or not to buy fuel coupons in order to speculate on the
upward movement in prices. The idea is to do everything possible to
reduce or curb brain drain.
In the past week, there has been a lot of threats and ‘measures’
coming from the Reserve Bank. The governor has gone on a witch-hunt.
Dr Gono is threatening to close down most of the banks still operating
in Zimbabwe. He is addressing symptoms and failing to ask himself why
South African or United States authorities are not complaining that
"ugly heads of indiscipline, corruption, fraudulent activities and
underhand manipulation of their money and capital markets have reached
epic proportions that are threatening to wipe the face of their
economies," yet they have more advanced fraudsters. The real reason is
that the Zimbabwe dollar has lost all its value. What is needed are
clear, objective, apolitical policy measures, and not stop-gap
firefighting patches. One of these policy measures involves
dollarisation of the Zimbabwean economy.
A question that would be asked is how to handle the issue of
individuals with substantial amounts of money in their bank accounts
and invested on the stock exchange. Most of this money came from the
‘burning process’. Salaries are in millions and billions, yet some
people have quintillions and sextillions in their accounts. If these
people were to be given access to that cash, its street value would be
worth so many United States dollars that the market would collapse
instantly (that is if Gono’s 30 year old presses can print such
figures). This issue has to be looked at before the dollarisation of
the economy. The sheer volumes of proceeds from ‘burning money’ are
such that it is very easy to differentiate between money gotten through
this means and that earned as salaries. An approach could be to convert
these volumes of money to their foreign currency equivalents, using the
transfer or cheque rates as at the dates when they got into the account.
These rates have been recorded by organizations such as Zfn. This can
be easily done using packages such as Microsoft Excel. On the stock
exchange, dually listed companies can be used to approximate the value
of all other counters.
Dollarisation is not all rosy. It has been shown to plunge economies
into debt and to stifle productive sectors. The government would have
to borrow in order to honour obligations such as paying the Civil
Service. However, the benefits which include reduction in inflation and
restoration of investor confidence outweigh the possible pitfalls.
Dollarisation coupled with Direct Foreign Investment (DFI) could cancel
out the effects of deficits. There are some legal and political issues
involved with using another nation’s currency. Whether Zimbabwe
decides to dollarise officially or semiofficially, there will be need
to engage parties both within and without Zimbabwe. The best chance for
this is after a solution to our current political problems.
by Ozias Farai Goredema
Post published in: Uncategorized