'Make bond notes official currency'

'Make bond notes official currency'
Published: 11 April 2017 (434 Views)

The Reserve Bank of Zimbabwe (RBZ) says the country should adopt bond notes as a primary currency to alleviate cash shortages and solve economic challenges.

RBZ director Economic Research Simon Nyarota said calls for the formal adoption of the South African rand as an anchor currency were not going to solve the country's biting cash shortages.

"The country needs to buttress the multi-currency regime with bond notes towards a full currency board arrangement as part of a de-dollarisation agenda," he said during a public lecture at the National University of Science and Technology in Bulawayo last week

"To migrate to a full currency board, the country needs to cover 100 percent of base money which currently stands at around $1,1 billion with foreign currency reserves," he added.

This comes as appeals for Zimbabwe to adopt the South African currency are getting louder since President Robert Mugabe said he was agreeable to the idea despite the reluctance to adopt the currency from his government.

Senior economic consultant Ashok Chakravati said rand adoption could also reduce foreign currency leakages - that are largely blamed for the current cash-crisis, with figures from the central bank showing that Zimbabwe lost over $1,8 billion in seepages in the first half of 2016.

"It is a non-convertible currency and therefore it will remain mainly in South Africa and in Zimbabwe," he said, adding that there was no incentive for economic agents to try and externalise the rand.

"An adequate supply of rand is available from our exports to South Africa, Diaspora remittances from South Africa, and access to the South African banking system - with which many of our banks and financial institutions are already connected," Chakravarti said.

Zimbabwe conducts 60 percent of all its trade with South Africa, according to the country's Treasury, and three million of its citizens are estimated to live in its southern neighbour after fleeing economic hardship at home.

Zimbabwe abandoned its own currency in 2009 to end hyperinflation and mainly uses dollars, along with rands, euros, pounds and several other currencies also accepted as legal tender.

But, a shortage of foreign exchange after a slump in exports has stirred a liquidity crisis that has forced government to introduce bond notes in a desperate attempt to ease cash shortages

Economic analyst, Vince Musewe also People's Democratic Party economic affairs secretary said service providers in the country must embrace the South African currency as a matter of urgency.

"It has always made sense to have the currency of our biggest trading partner as the main currency. In a way, this would minimise externalisation and also help with trade transactions between the two countries…

"However, in my view, retailers and other service providers just need to also price their items in rand. After all, the currency is already legal tender in the country so it is not like there are legality issues with doing this," Musewe said.

He also pointed out that the country did not have a currency problem, highlighting that currency issues were indicators of deeper economic challenges like fiscal and monetary discord.

"I do not understand it when people keep stressing that the rand is volatile. Yes, it is, show me a currency that is not volatile. What is the point of having a stable currency that you do not have in the system?

"It is simply an issue of choosing between two devils here, and the rand is the better devil. The RTGS system is already in rand as well, so it is simply an issue of ensuring that everything is also priced in rand," Musewe said.

The economist said formalisation of rand usage would also help correct prices locally.

"It will save Zimbabweans from United States dollar over-pricing so it will have a positive impact on the pricing regime and get rid of all these ridiculous mark-ups and margins we have seen in the economy," Musewe added.

Asset manager, Shane Helberg, pointed out that should the move to the rand prove successful, Zimbabwe would receive more Foreign Direct Investment.

"We can expect further levels of foreign investment and in turn more expats moving to Zimbabwe. A steady rise in foreign investment into country will represent a clear mark of success after such a move.

"Clearly, international organisations and people bring with them a raft of potentially enormous associated economic benefits to any host country," he said.

Helberg also indicated that Zimbabweans and expats already in the country would welcome a single currency to replace the present variety of currencies.

"Secondly, the measure should also help boost trade links with South Africa, Zimbabwe's major trading partner. For many years, South Africa has been Zimbabwe's single largest trading partner

"While the rand perhaps is not as weighty as the US dollar for international trade as it is more volatile against major currencies, it must be noted that the dollar has not been effective in arresting the free-falling economy in recent times

"When the rand becomes the de facto currency of Zimbabwe, the country's economic woes could seriously start to diminish," Helberg said.

However, economist Brains Muchemwa said adoption of the South African rand might not be a panacea to the country's well-documented economic problems.

"The thinking - and an erroneous one for that matter - that the adoption of the rand will make Zimbabwe a low cost producer is fronted by businesses that have failed to restructure their business models to suit the times or those who do not understand the key pillars of competitiveness," he said.

The former Reserve Bank of Zimbabwe advisor said the country was not competitive when it had its own currency while cost structures were negligible on account of high inflation.

"Equally, the thinking that adopting the rand will result in the narrowing of the chasm between RTGS balances and the real nostro balances to eliminate the cash challenges is fallacious and should not even be granted policy consideration," he added.

Another economist Chris Mugaga said the rand was prone to its own vagaries, pointing out that formal adoption of the currency would be a mistake.

"I do not understand why people think that the rand is attractive. Credit agencies have been downgrading the currency and South Africa is in chaos as its ruling party has an elective congress at the end of the year. Local confidence in this currency is nothing short of baffling.

"Look, a currency must fight for its place. The rand is already part of the multi-currency system but it was beaten out already, what is to stop this from happening if the central bank endorses it as a dominant currency?" Mugaga queried.

The analyst said Zimbabwe needed to fix economic dynamics instead of focussing on currency issues.

"The rand will also disappear because the country's problem is in low production and low confidence.

"In my opinion, as far as currency goes, the central bank just needs to admit that the bond is a currency so that life goes on and fundamentals can be fixed," said Mugaga.

Veteran analyst John Robertson also said Zimbabwe needed to produce more than it is importing.

"If we are to adopt the rand as the primary currency, there must be mechanisms to ensure that we also adopt South African prices for consumers goods, bus fares, wages and rents among other things, otherwise nothing much will change," Robertson said.

- dailynews

 0

You May Like These Videos

Comments

There are no comments.

Latest stories

Tsvangirai bans MDC-T primaries

by Staff reporter | 27 July 2017 | 58 Views

Dark week for Democracy in Zimbabwe

by PDP | 27 July 2017 | 49 Views

NewsDay journalists arrested, assaulted by police

by Stephen Jakes | 27 July 2017 | 58 Views

Grace challenges Mugabe to name successor

by Stephen Jakes | 27 July 2017 | 102 Views

Bosso trail Bulawayo City at BF

by Staf reporter | 27 July 2017 | 51 Views

Entirely my fault, Cdes

by CZ | 27 July 2017 | 46 Views

Mpilo maternity fundraising gala in UK

by The Life Project | 27 July 2017 | 89 Views

Unity among Mugabe's opponents falter

by Bloomberg | 27 July 2017 | 121 Views

Mnangagwa faction wins Chief Justice Constitutional amendment

by Stephen Jakes | 27 July 2017 | 118 Views

Nkosana Moyo talks on his Zimbabwe vision

by Staff reporter | 27 July 2017 | 100 Views

Second university for Manicaland

by Staff reporter | 27 July 2017 | 123 Views

Cops letting panners into diamond fields

by Staff reporter | 27 July 2017 | 97 Views

Mugabe's govt takes over Joshua Nkomo memorial lectures

by Staff reporetr | 27 July 2017 | 81 Views

Dembare blame referees

by Staff reporter | 27 July 2017 | 125 Views

Undenge dismiss fresh attempts to elbow him out

by Staff reporter | 27 July 2017 | 72 Views

English Premiership clubs to tour Zimbabwe during off-season break

by Staff reporter | 27 July 2017 | 124 Views

Kasukuwere, war vets on collision course

by Staff reporter | 27 July 2017 | 128 Views

Court stops Sheriff from arresting Chombo

by Staff reporter | 27 July 2017 | 70 Views

Diamond looters plotted to assassinate Minister Chidhakwa

by Staff reporter | 27 July 2017 | 82 Views

Zimbabwe maintains family planning course

by Staff reporter | 27 July 2017 | 59 Views

Bosso to unleash Gift Lunga's son

by Staff reporter | 27 July 2017 | 88 Views

Police officer injured in demo against roadblocks

by Staff reporter | 27 July 2017 | 77 Views

'Killer' MDC-T activists denied bail

by Staff reporter | 27 July 2017 | 65 Views

Zimbabwe maize production up 286% from a low base

by Staff reporter | 27 July 2017 | 63 Views

Zimra to swoop on land barons

by Staff reporter | 27 July 2017 | 65 Views

Truck overturns, spills 34 000ltrs of sulphuric acid

by Staff reporter | 27 July 2017 | 85 Views

War vets accuse police, CIO

by Staff reporter | 27 July 2017 | 67 Views

Mutuma was home sick

by Staff reporter | 27 July 2017 | 68 Views

Armed robbery suspect acquitted of murder

by Staff reporter | 27 July 2017 | 40 Views

Gay activist sues police, Zanu-PF activist for $10,8 million

by Staff reporter | 27 July 2017 | 48 Views

KFC gets ready for new Bulawayo outlet opening

by Staff reporter | 27 July 2017 | 55 Views

MDC-T accuses Mnangagwa of flouting Bill procedures

by Staff reporter | 27 July 2017 | 41 Views

DStv quashes Zimbabwe exit rumours

by Staff reporter | 27 July 2017 | 93 Views

Gringo request to meet Zodwa Wabantu

by Staff reporter | 27 July 2017 | 135 Views