Harare – Until the 19th century in China, an official method of torture and execution was called ling chi or “death by a thousand cuts”.
To put it bluntly, small pieces of skin or flesh were cut from a prisoner over a period of days until the victim died.
Today the term is used to describe any gradual destruction by seemingly non-lethal attacks.
In business circles, it describes the way an opportunity or organization is destroyed by continual small changes.
It also happens to be an ideal description of the Monetary Policy Statement presented by the Reserve Bank Governor which saw the country denominating all Bond Notes and Coins, mobile money and RTGS balances to RTGS dollars.
According to Mangudya the measure is designed to preserve the purchasing power of RTGS money and restore export competitiveness within the economy, yet some quarters are already arguing that it will spell more harm than good to the already bleeding economy.
Whilst the Governor is saying he is guarding against re-dollarisation of the economy, it is no doubt that the USD will remain the base currency for trading purposes in Zimbabwe because businesses are likely to prefer trading in a stable currency.
As the country denominates all Bond Notes and Coins, mobile money and RTGS balances to RTGS dollars, the country’s currency crisis remains unresolved. What this implies is that people and entities will have to return all the different balances they hold back to the bank to be redeemed in RTGS dollars.
Since RGTS means Real Time Gross Settlement which is an electronic form of funds transfer where the transmission takes place on a real time basis, economic analysts forecast that Bond Notes and Coins and mobile money payments will eventually be suspended paving way for a new currency.
Hence, without safeguarding measures in place, people’s RTGS balances, Bond Notes and Coins and mobile money will be eroded just like in the case of 2008.
In 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for November 2008 was 79,600,000,000 percent, leading to the abandonment of the currency.
The hyper-inflation was caused by printing money in response to a series of economic shocks. Zimbabweans lost their money in the banks and this perpetuated the trust deficit existing between citizens and the monetary authorities, that has led to the current poor banking culture.
Therefore, the pronouncement by the Governor will not be treated lightly by the people who are still haunted by the 2008 episode and it is now high time the country works towards the introduction of a standalone and credible Zimbabwean currency which will address the liquidity challenges once and for all and restore confidence in the country’s financial system.
Moreover, it is worrying that the formal floating exchange rate come at a time the country is heavily reliant on imports.
With the high demand for foreign currency in securing fuel, electricity, medical necessities, cooking oil and water treatment chemicals among other essentials, the exchange rate is likely to be inflationary.
While the policy statement gives an assurance that mechanisms are in place to safeguard against inflation, the actual modalities and tools remain unclear. Worse still, the monetary policy statement is coming way after prices have risen to unprecedented levels.
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