LIVINGSTONE MARUFU
DISCORD between the Reserve Bank of Zimbabwe governor John Mangudya and Finance Minister Mthuli Ncube played out in the open this week after the latter said the government would inject cash into the economy instead of introducing a new currency.
Since abandoning the multicurrency regime in June for a mono-currency system, Zimbabwe has continued to face cash shortages, a development that has encouraged black market currency dealers to sell notes at a premium as high as 60%.
The economy is also facing rising inflation, fuel shortages and rolling power outages.
Plagued by these challenges, experts say the economy could contract by 8% this year. Early this month, when the economist Eddie Cross said a new currency would be introduced in November, his remarks were thrashed by the Ministry of Information and Broadcasting Services.
However, on Tuesday this week, in his post cabinet briefing, Ncube said the injection of cash into the economy would help ease the cash shortages.
He made the remarks a few hours after Governor Mangudya, who chairs the recently-constituted Monetary Policy Committee, announced that a new currency to replace the bond notes would be introduced in the next two weeks. The bond note was introduced in 2016 as an export incentive.
But according to Ncube, “this is not a new currency, we already have a currency, it is the Zimbabwean dollar. All that is really happening practically is a cash injection that is absolutely needed to ease the cash shortage notes would be used interchangeably at 1:1 rate and the new currency will not be in bond notes (form), they will be called $2 or $5.”
He said there were some legal processes which needed to be gazetted through a Statutory Instrument and then the necessary advertising would be done before making the currency public.
Economists believe that the RBZ’s autonomy of introducing new currencies and announcing monetary issues is being overridden by the Treasury which continues to make announcements instead of focusing on the fiscal side of the economy.
The development comes after the two clashed over currency reform policies in February this year. At the time the RBZ believed that the country was not ready for a new currency while the Treasury believed the reintroduction of the Zim dollar would contain restive civil servants who were asking to be paid in United States dollars.
This is not the first time that the Treasury and the monetary authorities have differed on policy. In 2007, the then Finance Minister Herbert Murerwa was cut to size by former President Robert Mugabe after he had criticised quasi fiscal activities that were being pursued by the then central bank governor, Gideon Gono.
Former Finance Minister Tendai Biti also clashed with Gono after the latter called for a reintroduction of a mineral-backed currency. Mangudya said RBZ would increase the cash supply and revise the withdrawal limits upwards so that people do not have to pay premiums for their cash. But the central bank wants to introduce small denominations to contain inflation.
Ncube said the country was not introducing a new autonomous currency as widely reported in the social media, but was only introducing a new family of domestic notes to work in tandem with RTGS dollars which are already in circulation.
Ncube said the term “denomination” means it deals with the issue of divisibility so that it is easier to acquire change, so divisibility is using smaller denominations. An economist who preferred anonymity said pronouncements by the Finance Minister on monetary policy were compromising the autonomy of the central bank. The Monetary Policy Committee (MPC) has said that the increase in reserve money by 80% during the first eight months of 2019 compared to December 2018 position had triggered instability in the exchange rate and resulted in the increase of prices of most goods and services.
Mangudya revealed on Tuesday that ZWL$9.5bn (50%) of the money supply in the country was in the hands of 50 corporates. On curbing illegal cash sales, Mangudya said the RBZ’s Financial Intelligence Unit had already been deployed to curb illicit financial deals and massive profiteering by EcoCash agents, and that the behaviour of bureaux de change would also be monitored.
The total harnessed funds since the introduction of the interbank foreign exchange platform stand at US$1.3bn. Most of the money was being channelled towards purchases of fuel, adding that the equilibrium in the interbank exchange rate would be a level of 5 to 8 to the US$.
The MPC noted with concern that the continued inflationary pressures in the economy, projected to recede in the outlook period as attested by the recent decline in monthly inflation from 39.26% in June 2019 to 18.07% in August and further to 17.72% in September 2019. In its analysis of the currency reforms, the research firm Morgan & Co said currency markets work on confidence in underlying economies.
It said Zimbabwe was at its lowest in terms of GDP growth, inflation, FDI flows, and trade balance and indicators such as corruption. The research firm said it was wrong to introduce a currency that was not backed by any real assets, and called for meaningful and deeper reforms to sustain the currency.
Morgan & Co said money had a political face to it adding that currencies such as the United States dollar and South African rand had faces of political leaders (past presidents) reflecting how the politics of the day influences the value of currencies.
“In the case of Zimbabwe, the political picture is tainted with past mistakes and sanctions [EU and ZIDERA],” it said.
