Zimbabwe has no plan to adopt rand – Gono

The Reserve Bank of Zimbabwe was not considering the use of the rand to
anchor its worthless currency, the central bank said yesterday.

This follows a suggestion by President Kgalema Motlanthe on an SABC
Sunday broadcast that it "may be practical for [Zimbabwe] to enter into
an arrangement with the Reserve Bank here and allow the rand to become
the common currency" to help Zimbabwe’s crippled economy, now that a
government of unity was in place.

Gideon Gono, the governor of the Reserve Bank of Zimbabwe, told
Business Report yesterday that a formal bi-monetary arrangement with
South Africa "is not an option we are considering", adding: "I have not
exercised my mind on this issue."

Gono said his recent statement on monetary policy did not refer to using the rand to anchor the Zimbabwean dollar.

Gono gave no updated inflation figures in his policy statement, but did
say that broad money supply growth had risen from 81 000 percent in
January last year to 658 billion percent in December, according to the
Zimbabwe Independent. This is an indication of the rate at which the
central bank is printing money – at a time when the real economy is
shrinking.

Gono yesterday denied knowledge of a document bearing his name, which
describes the rand as "the naturally obvious currency of choice to
anchor the Zimbabwean dollar".

SA Reserve Bank spokesperson Samantha Henkeman declined to comment on
Motlanthe’s suggestion, but said the bank had "not been formally
approached".

Dennis Dykes, the chief economist of Nedbank, said: "Zimbabwe’s
terrible monetary policy has contributed to its dysfunctional economy.
If the rand were adopted, Zimbabwe would automatically adopt the
interest rates and monetary policy of the SA Reserve Bank."

Mthuli Ncube, the head of Wits Business School and a professor of
finance, said that if the new Zimbabwean government wished to base the
economy on the rand, it would face the problem of acquiring enough
rands, either through exports or a very large loan from a bank.

As Zimbabwe’s export capacity is almost exhausted and it poses a poor credit risk, neither provides an obvious solution.

An analyst who did not want to be named said it was difficult to
calculate the sum needed. "In South Africa about R1 000 is circulating
for every person," he said. However, the local economy was much larger
and wealthier and Zimbabwe could manage with less. "But nevertheless,
we are talking of billions of rands."

Ncube said the SA Reserve Bank could make the rands available through
the banking system. On how the scheme would be financed, he said South
Africa’s action "would be a trigger for donor countries". And the loans
raised would eventually be paid for from export proceeds, once the
country was functional again.

But replacing Zimbabwe’s currency would effectively contain inflation
only if "the government also practised fiscal discipline", he warned.

He dismissed criticism that this would be a burden to South Africa.
"The Zimbabwean economy is only a small fraction of the size of South
Africa’s economy. There are already an estimated 3 million Zimbabweans
living in South Africa [and] sending remittances in rands. The rand is
already being used in Zimbabwe and these suggestions would merely
formalise things." Business Watch,