RBZ should print more. . . if productivity requires it. . .Hyperinflation memories are not lessons learnt

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Chris Chenga
As a society in Zimbabwe we have often struggled to conceptualise independence outside of politics. This is quite unfortunate; political self-determination should have preceded a vibrant society excited by intellectual possibilities offered by independent thought.

This hasn’t been the case. Independent thought is directed by curiosity, and it is brought about to terminal conclusions through logic. Regrettably, our curiosity frequently ventures only as far as to be satisfied by global institutions, particularly of Western establishment.

“What do they have to say about the matter?” We wonder. Our logic never explores customised reason or circumstance. Whatever a Western establishment has to say about a matter, the logic is suffice, never mind reason or circumstance.

Of course my intent is not to bemoan what can easily be perceived as a narrowly Zimbabwean condition. Many societies close themselves off to independent thought, especially in regards to socio-economic matters.

This is likely an influential reason for sustained global stagnation, and the withering social mobility in numerous societies. Consider Professor Steve Hanke’s critique of the world’s predominant economic press, chiding its ill-effect on the perception of academics, professionals, and governance on socio-economic matters.

In his blog published on June 3, 2016 for The Cato Institute, an independent think tank with significant influence in Washington and Wall Street, Hanke wrote: “This confirms the “95 Percent Rule”: 95 percent of what you read in the financial press is either wrong or irrelevant . . . The International Monetary Fund (IMF) is the main culprit, a prominent source of the faulty data.

Even The Economist magazine has fallen into the trap of uncritically accepting figures pumped out by the IMF and further propagating them. It’s no wonder that there is a massive gap between the public’s perception and economic reality.” If we are to take what Professor Hanke says, then group think prevails even in advanced economies and it is affecting the general public; a trickle-down effect starting at the most credible intellectual stakeholders.

This same condition is prevalent in our own financial and economic press. For instance, we take everything the IMF says as right. Reflect on headlines of just a week ago after the IMF’s Annual Article IV Consultation and staff report.

The IMF states that banks are supposedly at high risk of solvency due to government borrowing. We should query why this triggered sensational press hysteria, yet, non-performing loans several years ago that had reached double digits posed more consequential risk to banks. Much more perilous a circumstance, non-performing loans at the time posed a far greater systemic risk that threatened to collapse the entire sector.

A contagion effect was likely to cut through, and more importantly, reach into the wider macro-economy by constraining the meager sustained productivity at the time. ZAMCO, a vehicle financed by the same credit financing condemned by the IMF staff report, strategically continues to clean banks’ balance sheets in a manner that subdues the rather alarmist narrative of which our press ran with.

Conceded that it is not sustainable to run an economy on Treasury Bills, the IMF Article IV Consultation was perhaps the factually weakest and contextually least precise published by the institution since re-opening its office in Harare. Yet, for our financial and economic press, “What do they have to say about the matter?” We asked. Whatever the Western establishment had to say about the matter, the logic was sufficed, never mind reason or circumstance.

Thus, the 95 percent rule applied fittingly last week. Either wrong or irrelevant, press was barren of independent thought creating that gap between public perception and economic reality!

Indeed my chosen narrative is not to berate fellow Zimbabwean media companions, and other prominent intellectual stakeholders who inform the public’s perception on socio-economic matters. However, we cannot proceed towards any social or economic prosperity in our nation until we find intellectual independence on matters of our existential relevance. The benchmark of Western establishments isn’t a conclusive one, nor should it remain confining to our own appetite for further independent curiosity and logic.

Today, we struggle to conceive a scenario where a central bank expands the money supply in an economy. If it is not due to references such as IMF reports or disparaging articles on Zimbabwe in The Economist or Bloomberg magazines — of which many articles lack credible academic or intellectual facts on developing economies — the only other metric of which Zimbabwean stakeholders reference is solemn memory! Memories within themselves are not lessons to be learnt from; no matter how horrific they may be. Further curiosity as to the causes of why Zimbabwe once failed to sustain measured money supply is the only armour to a safeguarded future.

Sure, one cannot expect an entire society to settle on a consensus of explanation as to what happened. But, to what extent have we diligently ventured into understanding the complex nature of events that led to hyperinflation in Zimbabwe; events that should be cognizant in our impulses to expand money supply today?

Memories are inadequate and can be misleading, especially for a society that never traces the technical logic of expanding the money supply whilst articulating the circumstance — if indeed it exists!

Comparatively, as the Great Recession started to unfold in global financial markets, Western academia, finance professionals, and governance had already began to enforce broad study on the influencing factors that led to the crisis.

Within a year or two of the global recession, various schools of thought had ignited possibilities for societal and economic reform, responsive to the circumstances that led to the crisis.

Zimbabwe is drawing towards a decade removed from hyperinflation, yet we remain with minimal independent intellectual guidance on events that transpired, ultimately leading to the hyperinflationary figures as famously calculated by the aforementioned Professor Steve Hanke of the Cato Institute — on our behalf I presume?

Much so, when Governor Mangudya announced bond notes in mid-2016, it was largely memories critics held onto — and of course the few disparaging Bloomberg and The Economist articles! Today, as Mangudya signals further printing, contesting policymakers, academics, economic press, and even bank executives vocal around casual beverages, can only reference the memories of the 2000s for the intolerance to printing.

Sure, whether Mangudya should print or not is open to opposing opinion, but have we developed our positions on diligent independent thought?

Initially, maybe we can differentiate the societal and economic outlook of today from that of the 2000s. Back then, mobility factors such as migration or displacement left many sectors completely vacant leading to rapid de-industrialisation.

Societal grievances stripped entire supply chains of experienced and highly proficient market agents. A fast-track land reform process seriously destabilised an industry that contributed well over a fifth of the entire economy’s GDP. In retrospect we talk of such occurrences in a moderate tone, but the times were hardly as civil. The existing societal dynamics superseded any conventional monetary policy manoeuvring.

Contrary to how governance and the central bank conceptualised shock response, from the onset monetary policy and supportive quasi-activities, were never going to be an adequate cushion to such decaying societal dynamics. Monetary instruments are never going to be a substitute to social harmony! Ideally, the general public should have been guided away from such a conviction as well, as it clearly stuck even up to today, hence the pointed blame towards governance and the central bank alone with minimal societal retrospect.

But, political posturing by the ruling party in a display of nationalist resolve was never going to allow the public such veracity — power politics hardly exposes its own vulnerability. Let’s keep it. Needless to say, these societal dynamics are far better and relaxed today.

Many sectors are filled with active agents, supply chains are somewhat realigning, and though largely a different demographic, there is some activity on vast tracts of land with volumes for some cash crops even re-emerging to pre-land reform numbers. At a macro-economic level, Zimbabwe’s relations have normalized to a significant and impactful extent. Economically, capital flight is subdued, the Zimbabwe Stock Exchange even representative of an investment alternative in cyclical instances of fright.

These factors do not mean that there’s a comprehensive case for more printing. They simply give credence to the fact that the economy is grounded on a far better productivity potential than it was in the 2000s; socially, structurally, and economically. A productivity potential is needed to sustain any volume of money supply, let alone an expansion! Fundamentally the principle of money supply is one of whether or not volume of money in an economy is contained within productive economic activity.

As Governor Mangudya himself would verse it, the economy has proven the stability of which, only after that stability, growth can be stimulated by money supply! So, the matter of whether or not the RBZ should expand money supply is firmly dependent on whether or not the RBZ can balance that money supply to productivity?

Key factors will prove consequential if indeed the RBZ does commit to printing. While the economy has greater productivity potential — for instance, GDP per capita in 2003 was $449 while GDP per capita in 2015 was $890, almost double — there is a challenge to formalise this economic activity. Higher GDP numbers are futile to the case of money supply if it occurs in the informal economy. According to RBZ, 5,7 million Zimbabweans work in the MSME sector, including 2,8 million business owners.

Despite the size of the market, only 14 percent of business owners are banked with 2,3 million business owners being financially excluded. Contrary to Minister Chinamasa’s excitement to a “new informal-based economy”, such a formal to informal ratio will find it difficult to benefit from an increase in money supply; particularly in a case where a parallel currency market exists.

For money supply to be potent and sustain productivity, the greater volume of money should be contained within formal economic activity. The risk of parallel money markets is only as real as there lacks a productivity alternative for that liquidity. This is the RBZ’s greatest challenge! To simplify, you cannot deter somebody from trading currency if that person cannot find any competing productive use of that currency.

This leads to a significant point to consider in our money supply discourse; the categorisation of money. The fact that we are challenged to sustain money (notes and coins) only, could allude to the structural potential that still exists through continued efforts to strengthen the formal economy. Consider that formal categories of liquidity supply like M2 (money in building societies or other proprietary accounts) unlike in the 2000s is far from threat.

In fact, insurance, pension, and society funds remain a potential source of productive money supply, which is in stark contrast to their treatment during hyperinflation years which left many left many proprietors dry after demonetisation.

So if the RBZ can continue to strive towards strengthening the productivity of higher category money supply, this will aid the overall productivity potential that can formalise unemployed masses. For example, relatively long term construction projects offer jobs. Think of low income housing projects.

Simultaneously, for qualifying residents to comply with housing demands they must allocate their liquidity more and more into higher category supply e.g mortgages, housing co-operatives, mutual funds etc . . . Thus, looked at holistically, categories of money supply can work together to create self-perpetuating productivity.

One can be optimistic because the efforts are clearly there. Also, in the micro-finance sector for instance, which is relatively more accommodating to marginalized financial clients, productive lending has gained from 29% in 2012, to 50% in the year end 2015. The trend remains upwards.  So quite evidently, there is a greater impetus and appreciation for productive use of money supply in our economy.

Conclusively, printing money as per the 2000s ultimately proved unsustainable and inflationary due to its failure to incite productivity. The country’s societal, structural, and economic outlook is vastly different today. Conceded that we are not as productive as an idealist would perceive, the economy has proven relatively stable for several years now.

The RBZ shouldn’t superficially be deterred from printing. Let’s think for ourselves here. Let’s be curious and trace logic. I humbly suggest that the contestation to printing should be based on whether or not that printing is warranted by productive use of expanded money supply. True, printed bond notes so far haven’t been adequate for growth, but they also haven’t crashed the economy, and to many bond notes have found utility! The battle to even money supply with productivity continues. The Reserve Bank should print more, if productivity deems it so!

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