Zimbabwe's return to own currency is a brave move

Zimbabwe's return to own currency is a brave move
Published: 25 June 2019 (186 Views)
When the government introduced bond notes it was very clear that the pretence currency was bad money that was going to wipe away good money. This came very true in a fast manner. Within a few months, the bond money took its own identity and exhibited and ran so fast away from the US dollar in a few months the rate was extraordinary. One is to ten in some circumstances. The only way out was to ditch the bond for the real money. But alas we have just dumped the real money for the bond. We are going to make it imposable to understand this idea whose is it

The bond notes have a track record of failure. It was to be rescued by RTGS dollar again it wondered in the valley of hard rocks the RTGS would fail and it's happening.

We have always called the government to abandon the US dollar and bring back our own currency. With the US dollar, Zimbabwe was the most expensive nation in Southern Africa. The pain of being a multi-currency nation was so visible and the value of the US dollar was abused. On the 24th June government abolished the multi-currency regime which was introduced a decade ago. This was done to thwart hyperinflation. In the multiple currency basket, the USD had become the de facto currency of choice as the legal tender. This triggered an unprecedented parallel market regime which caused price increases in the economy and created a very unstable economy. Because the US dollar remained as a viable alternative and it covers retailers from inflation so it always pushed the black market rate high.

The Zim dollar has come when the market was yearning for a change. For a local currency. The use of the US dollar was a fictitious way of life. Now the country is shaken back to reality and the move to bring back our currency is a normal and long-expected move. While many expected it to come in December the quick introduction has been a well come surprise.

A Nation is not worthy of its sovereignty when it cannot have its own currency. As a country, we were embarrassed and reduced by South Africa where they set ridiculous-conditions. Demanding to have an officer present at any meeting of financial nature. They had hoped to take over our nation. We were to sell our pride and become puppets of South Africa.

Our own currency now means that we can purchase foreign currency where it is possible. The market is now confident in the Zim dollar Retailers can now put their goods on the shelves and sort out the demand and supply issues.

The parallel market will be brought down like a deck of cards. with a vengeance since the government has introduced domestic currency. The market will now embrace the Zim dollar.

Think of it like owning a house vs renting. If you own a house, then surely the problems are your own, but you can control renovations, remodelling, you can tweak things as you feel you need it.

Renting means ultimately you are at the whims of the landlord (let us pretend you had no tenant rights, as would be the case in the currency thing). They don't have to repair anything, they can turn off your heat/water if they feel like it. They'll set the temperature to whatever feels best to them, regardless of what you need.

Maintaining and controlling their own currency is pretty important to a governments ability to control their own economy. Some places like the EU have actively decided to shift that responsibility to a central organization, and hold outs like the UK have refused to give up that sovereignty.

It is also worth noting that per unit there are stronger currencies than USD.

I think what he means is that while the US dollar is relatively strong, it should be noted that it is not THE strongest currency in the world. For example, 1 USD is equal to 1.37 Australian dollars. However, 1 Kuwaiti Dinar is equal to 4.54 Australian dollars. Per unit, a Kuwaiti Dinar is stronger than a US Dollar. In this case, then, why doesn't the US switch to the Kuwaiti Dinar?

I believe the note was meant to bring light to the fact that by your logic, everyone would want to switch to the strongest currency, and also that the USD is not the strongest currency in the world.

Currency fluctuation against others is a key mechanism for countries lifting themselves out of recession, so using the US dollar would take away that key monetary tool. When you have your own currency, you are in control of your own monetary policy. Your central bank can set interest rates to each combat local inflation or promote local employment (there is a short term trade-off between those two).

When you are using someone else's currency, you don't have control. A central bank in a foreign country may decide to tighten their monetary policy when your own local economy demands loosening. Or the other way around, a central bank in a foreign country may loosen their monetary policy at a time where your local economy is trying to fight inflation.

Reasonably-sized fluctuations in your currency can actually help stabilize things. If not enough money is flowing in, your currency will depreciate which will help inspire foreign investment (tourism & your exports).

You can encounter problems having your own currency if your central bank is poorly run or if your economy is too small and too connected to a larger economy.

To add a bit to what's already been said, in Argentina during the 90s there was an attempt to bind the peso to the dollar (1 ar = 1 USD), which brought serious problems to the country's economy since maintaining the situation required taking tons of debt or privatizing strategical assets.

The benefit is Zimbabwe can adjust its monetary policy to match its economy, things like printing more or less money or change the interest rates on money loaned by the central bank. It also means we can issue and repay bonds our own currency, printing money to do so if necessary. That is part of the reason Greece is having trouble, all the money they owe is in euros, and euro policy is set to benefit the EU in general (mostly Germany and France), not any particular country.

The drawback is that smaller, less diversified economies are more volatile, making their currency fluctuate more.

When a currency is unstable, trade partners charge more to offset to the possibility of a future loss of value. Using a foreign currency also protects a country from itself, as corruption and a few months of bad monetary decisions can cripple an economy for years Zimbabwe is a good example where corruption brings the country down.

Also, switching to the dollar is often less of a choice and more of an acceptance. When a currency is weak, businesses abandon it and start using a strong currency instead, whether the government wants them to or not.

The single biggest issue is banking. This is a gross oversimplification, Banks take deposits from people and give out loans. Loans sometimes don't get paid back. This means that banks don't have the money to pay back depositors. This will trigger a bank run, where everyone tries to get their deposits back at the same time. This is a bad thing to happen, and will probably collapse the economy.

In order to stop this, governments have the concept of "deposit insurance". When the bank can't depositors back, the government does it instead. Problem is, sometimes the government can run out of money too. When a country runs its own currency, the government can't run out of money. When a country doesn't, then bank runs can't be stopped when the government have the confidence of crisis.

For an example of how this can go horribly wrong, see Argentina in the 90s when they did run on the US dollar. The government ran out of money, bank runs, and all the fun stuff.

So the introduction of the Zim currency is an overdue expectation. Now we can relax and watch Zimbabwe grow. It is a pity that most political misfits find blame in the government for such an excellent move.

ED has taken a very brave decision to bring back our own currency. This is bringing back our sovereignty. Now we can operate as a country.

Vazet2000@yahoo.co.uk


- Dr Masimba Mavaza

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