Three Currency Regimes and counting, all in 1 year


    In this new dispensation, in a space of just 12 months, Zimbabwe would have experienced three different currency regimes, a sign of poor policy planning and implementation. “The RTGS dollars shall be used by all entities (including government) and individuals in Zimbabwe for the purposes of pricing of goods and services, record debts, accounting and settlement of domestic transactions,” said the RBZ when it formally monetised electronic balances, officially moving away from the multicurrency regime, the long held currency regime since 2009.

    Recently, President Emmerson Mnangagwa stated that the government plans to introduce a new currency by end-2019. This implies that in a space of just 12 months, the country would have migrated from a multicurrency regime which was mostly denominated by the US$ to the RTGS$ then to finally to the new currency which is yet to be named.

    Honestly, these will be a world record in terms of currency hip-hopping.

    Why such a confusion?

    Zimbabwe policy confusion emanates solely from poor policy planning and lack of clear long term goals and a shared vision. In 2009, the country was forced to adopt a multi-currency system after hyperinflation, which surged to an astronomical 231,000,000%, made the local currency dysfunctional.

    The adoption of the multicurrency system was not by choice, but by the dictates of the market. But with weak exchange rules and a strong appetite for imported products, Zimbabwe soon ran out of US dollars for both local and external transactions. The central bank, in an effort to ease currency shortages, introduced bond notes in October 2016.

    Though not legal currency – rather just a financial instrument – they were used for local transactions and initially at par with the US dollar, meaning US$1 was equal to 1 bond note. The market, however, quickly rejected the bond notes and the surrogacy currency lost value, trading at a huge discount to the US dollar.

    Then now enters the RTGS$ which was introduced in February 2019, in the process abandoning its long held 1:1 parity between the US dollar and its local transactional instrument, the bond note. “We have introduced the RTGS dollar. Citizens have to accept the introduction of the RTGS dollar. Whether you like the name or not, it is the domestic currency now – let’s respect it and support it,” Finance and Economic Development Minister Mthuli Ncube said.

    This was not by choice but also a result of a clear lack of forward looking policies. With the situation becoming untenable, the RBZ, in its 2019 Monetary Policy Statement, finally abandoned the long-held 1:1 parity between local bond notes, including RTGS balances.

    The central bank then officially introduced the RTGS dollar, which is made up of bond notes and deposits in the bank. No new notes were issued, and there was no announcement that new notes would be introduced.

    Notes and bank deposits were combined under the same name to ensure that those using bond notes to transact were charged the same as those doing electronic transactions, for example by using mobile money.

    In the past, to buy US dollars with bond notes or through a bank transfer, a different rate was used, and to remove that distortion, the central bank decided to introduce the RTGS dollar as a legal tender.

    To make the RTGS$ acceptable, the RBZ introduced the interbank market. Like any normal market, the relationship or the exchange rate between the US dollar and the RTGS dollar was now expected to be determined by market forces, through the interbank market. At introduction, on February 22, the exchange rate was RTGS$2.50 for every US$1, and the rate remained there for more than a week.

    However, the rate has now depreciated to RTGS$6.10 for every US$1. But, according to the RBZ, all local transactions were supposed to be settled in RTGS dollars therefore putting an end to the multi-tier pricing system.

    This only applied on paper as all shops and including Government departments charges both prices, with transactions in US$ receiving huge favourable discounts. Most economic agents are pricing in US$ then convert to RTGS$ using punitive rates. It is clear that the economy is now dictating for another de-facto dollarization.

    It is a like an empire that is falling and authorities are attempting to find ways to possibly postpone the eventual fall. This is being done through the intended reintroduction of a sovereign currency that will ultimately replace the RTGS$.

    One may argue that there are no notes and coins printed RTGS$ and sees the move as a way of having a local currency. But what is money? Money is what money does and the RTGS$ though not printed, is indeed a local currency. The move to introduce a new currency to replace the RTGS$, I equate it to a rebranding exercise and I can term it “Currency Rebranding”.

    Why Currency Rebranding?

    Marketing executives normally undertake rebranding exercises to change brand perception and appeal to both existing and potential clients, normally after a company has undergone a phase of bad performance or bad reputation. They normally undertake the exercise to revamp the appeal of the company or a certain brand.

    The strategy can also be undertaken to postpone the ultimate demise of a certain brand. However, it is only sustainable when the company has completely restructured its operations and made right its fundamentals.

    There is no supporting evidence that the intended new currency will be any different from the RTGS$ and bond notes as fundamentals remains the same. An economy is a function of two sides, the monetary side and the production side, and for optimal operation, there has to be a balance.

    The current scenario is a result of an increase in money supply which is not supported by production. Although the economy is enjoying an austere tax driven budget surplus, it is indeed not sustainable and failing to propel the much needed confidence. That is why economic agents are sceptical of the success of the intended new currency.

    It is also questionable whether the government has the funds and institutional strength to implement the re-introduction of a Zimbabwean currency over this time-frame. With inflation slowly approaching the 100% mark, there is need first for serious reforms, both policy and at institutional level before speaking of any currency rebranding exercise.

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