eBusiness Weekly
Taurai Togarepi
Following years of hyperinflation, the country adopted a multi-currency system in February 2009 as a way to stabilise the economy. The strategy worked in the first few years until 2016 when the country started to experience serious cash shortages with banks limiting withdrawal limits to as low as $20 per day per depositor. What went wrong after such a promising start under the multi-currency system?
It becomes imperative to mention some of the major developments that could have caused this problem for example the allocation of a paltry $20 million during the demonisation process. Does this mean the economy had equivalent of $20 million at the end of 2008?
Secondly, the authorities should have known better that the exit was going to be more difficult considering the US$ is a strong currency and primarily the country exports little to that nation. A lot contributed to the current problems the country’s is being confronted with including; demonetization of the ZWD, fiscal indiscipline, the weakening of the rand against the US$ in 2015 and 2016, ballooning electronic money balances versus physical cash in circulation, spiraling imports, low confidence in the formal banking system and externalisation among others.
There have been many theories prescribed by various authorities and economists as a way to solve the current crisis.
However, it is important to understand that the cash crisis is just a symptom of deep-rooted problems; hence, efforts should be targeted at solving the root cause as opposed to targeting the symptom.
Furthermore, there is need for concerted effort from all stakeholders and a renewal of the mind on part of the banked and unbanked public. All stakeholders including Government should make some serious sacrifices in order to fix the current anomalies bedevilling the economy.
There is need for fiscal discipline on the part of Government. Cash budgeting is painful but necessary to restore fiscal discipline and narrow the ballooning deficits that are being financed by the issuance of TBs and running an overdraft with the Reserve Bank. The increase in the quantum of Treasury Bills in 2016 and 2017 triggered the panic button. This resulted in widening of the gap between the electronic money balances and physical cash in circulation coupled with increased levels of externalisation due to fears emanating from weakening of the economic environment.
The introduction of the bond note worsened the situation as the “bad money” is now chasing the “good money”. It was never a wise move from the beginning to introduce the “surrogate currency” as its acceptance was not the issue but the unintended consequences, which are just too much to stomach.
Some analysts are advocating for the adoption of the rand as a short-term measure to solve the current cash crisis. I strongly believe this is not the best solution under the circumstances as this simply brings us back to where we are right now. South Africa is facing its economic headwinds resulting in the volatility of the rand; hence, it is difficult to see how the adoption of the rand will help Zimbabwe.
The country needs policies oriented towards promoting productivity to boost output, the so-called “free market supply side policies”. There has been deindustrialisation over the past decade and this not good for the country from all fronts.
Zimbabwe has become a supermarket economy for other countries, resulting in the death of manufacturing sector and ultimately pushing unemployment levels higher. The solution should not lie in wanting to adopt currencies of other economies but on policies that will help to stabilise our own currency when the time is ripe to have one, which is not now.
The focus should there be on policies to lay the foundation for such a time. The more we concentrate on short-term policies the country remains a dumping yard for other countries and drain the little hard currency being generated. I believe the country needs at least three years to set a firm foundation for sustainable growth going forward.
One reality people ignore is the demonetisation process, which was funded to the tune of a paltry $20 million. This eroded liquidity in the market in a big way as most depositors only got $5. This among other factors contributed to the challenges the country is grappling with today.
Government needs to adopt a holistic approach to deal with the current challenges.
