The Sunday Mail
For an item to function as the medium of exchange, it must have increments/units that allow it to be traded for both multi-million real estate and bubble gum, and everything in between.
In December 2014, the Reserve Bank of Zimbabwe introduced coin denominations of 1c, 5c, 10c and 25c to circulate alongside a basket of currencies.
The 50c denomination shall be introduced by March 31, 2015. The coins are legal tender issued in terms of Section 44 of the Reserve Bank of Zimbabwe Act (Chapter 22:15).
They are called “bond coins” to reflect the fact that these coins are backed, anchored, cemented or bonded to a US$ facility that is giving the coins the strength of being at par or one-to-one with US cents.
This has seen the market gain confidence in the bond coins with major corporates such as Innscor, Econet, Telecel, Delta, OK, TM and Long Chen Plaza accepting them.
In the informal market such as Mbare Musika, Siyaso, Gazaland, Mupedzanhamo and the Glen View area of Harare, the bond coin has gained acceptability and has firmed against South Africa’s rand whereby for $1 of bond coins you get R11.
When the bond coin was issued in December, $1 bond coins was valued at R10.
So, there has been a 10 percent appreciation of the bond coin, signalling its acceptability by the market.
The coins are meant to boost competitiveness through instilling or promoting an accurate and credible pricing system for goods and services under the multi-currency system.
Competitiveness is basically a price phenomenon.
A phenomenon caused by the negative effects of rounding up of prices by businesses on the grounds that there were no small denomination coins to correspond and strengthen the US$ pricing system.
The RBZ has given a clear illustration of the problem: “For instance, due to lack of change, the general minimum price of a sweet in the country is 5c whilst a 500ml bottle of water at 50c is more expensive than the cost insurance and freight (CIF) price of a litre of diesel.”
This is unheard of anywhere in the world.
The abnormality has to be fixed and this is widespread throughout the economy with price distortions being the order of the day.
Due to the suffering during the last days of the last currency, Zimbabweans were initially very suspicious and hesitant to touch or trade in anything that resembles local currency.
The multi-currency system was critical in achieving economic stability, but was limited in terms of achieving growth as the lack of smaller denominations caused prices to be rounded upwards and were sticky upwards since the system lacked one of the qualities of money.
The four key characteristics and qualities of money are: divisibility,durability, transportability, and non-counterfeitability.
Divisibility means money can and should be divided into small incremental units that can be used in exchange for goods of varying values.
For an item to function as the medium of exchange, which can be used to purchase a wide range of different goods with a wide range of different values, then it must be divisible.
The smaller the divisions, the better.
For an item to function as the medium of exchange, it must have increments/units that allow it to be traded for both multi-million real estate and bubble gum, and everything in between.
Divisibility is one reason why precious metals such as gold, silver, copper and nickel have been widely used as money throughout history.
As pure elements, each can be divided into very small units, in principle, down to the molecular level.
In contrast, livestock, which has seen limited use as money in less sophisticated agrarian and less developed societies, never became widely used as money in modern economies.
Dividing a live Brahman bull into units small enough to buy bubble gum is highly impractical and impossible.
This would return the country to the dark ages of barter trade.
For example, US money – both paper currency and bank account balances – comes in increments of one cent, sufficiently divisible to accurately match the value of virtually every good and service available in the economy.
If the US monetary system consisted exclusively of US$100 notes and nothing smaller, the public would have problems buying goods such as soft drinks, bread, or candy.
These goods and millions more have values that cannot be rounded to the nearest $100.
Zimbabwe is experiencing the end of a very painful era and entering one of unlimited opportunity and possibilities.
The country has adopted a proven and stable currency system.
The Zimbabwe dollar is officially dead and buried and the equivalent of its death certificate was the latest monetary policy statement which set in motion practical and irreversible steps to demonetise the Zimdollar.
The public should not fear any back door attempts to bring back the local currency.
In line with the policy pronouncement by Finance and Economic Development Minister Patrick Chinamasa in both the 2014 Budget Statement and the Mid-Term Budget Statement, the RBZ shall be demonetising Z$ balances by June 30, 2015.
It is envisaged that US$20 million shall be used for this purpose.
Government is committed to preserving the multi-currency system up until the following economic fundamentals have reached acceptable and sustainable levels: minimum foreign exchange reserves equivalent to one year of import cover; a stable and sustainable Government budget; interest rates; level of domestic business confidence; inflation rate; state of (and confidence in) the financial sector; consumer confidence; ability of wages to keep up with prices and the health of the job market.
The RBZ seems aware that “the reality of the national economy is that all the above economic fundamentals or indicators are weak to even contemplate the return of the local currency”.
This makes it clear the Zimdollar is gone and any thoughts of the local currency will only be entertained once the country has recovered lost ground in terms of productivity.
Clearly, there is need for industry and service providers to right-size their businesses and review their margins to sustainable levels as would be normal.
After the hyperinflation period, it is obviously clear that most businesses had a hang-over of super-profits which they tried to pass on to the consumer via rounding up of prices or forced sales such as giving someone a pen, gum, matches or cigarettes instead of change.
Many businesses just carried over their Zimdollar mind-frame, thoughts, salaries and perks into the US$ era without any matching increase in productivity in US$ terms.
Consequently, many businesses experienced difficulties or accessed huge loans not backed by sufficient cash-flows.
This has been disastrous. and very painful for business.
Now is the time to properly revise forecasts, projections, scale back, have a reality check and right size the operations which will guide business and the economy into a period of unrivalled prosperity.
Gilbert Muponda is an entrepreneur, investment banker and researcher
