Over the past year, most of the RBZ’s efforts can be interpreted as facilitating a monetary system.
This takes the nature of enabling transfer of monetary assets between counterparties, as well as enabling the transfer of monetary assets between proprietary platforms.
For instance, the RBZ has put in place capital controls and withdrawal limits on proprietary platforms, as well as work to provide facilities that avail adequate currency for payments and receipts between counterparties.
In effect, the RBZ has done a lot of work to provide entities within and outside of the economy a functional monetary system.
While the RBZ’s monetary policy is essential to enable a functional monetary system, it often falls short in terms of enhancing the productivity competitiveness and efficiency of an economy.
The nuance is extremely important!
To provide a functional monetary system is one thing, to ensure the continuity of that monetary system is another – the latter depending largely on competitiveness and efficiency of productivity in the economy.
Consider what I said the week after the announcement of bond notes:
The central bank needs to keep its eyes on the productive and competitive condition of the people.
Daily cash withdrawal limits, currency conversion to bond notes, and such are all secondary. Some of these measures may not even be necessary if the economic condition of the people was to be fixed.
So, what is going on with the people? The people are unemployed or are not doing work of significant value.
The people are unproductive; not due to a lack of effort on their part, but there are few efficient value chains for them to join into.
In a balance of payment context, the people are accruing payments to far superior productive foreigners who are providing us almost all our living.
The people are not accumulating adequate wealth for themselves to be represented as monetary assets that guarantee widespread real time settlement.
These conditions mean that the Zimbabwean people are not in an economic condition to sustain a robust monetary system, regardless of what medium of exchange that system may pivot to transact in.”
A few months after release of the first tranche of bond notes, this analysis gains more credibility of truth.
The nuance which evades the RBZ is that the bank has laboured to stabilise a monetary system that threatens to be broken by the underlying inefficiency and non-competitiveness of the economy.
The example of bond notes shows a central bank trying to stabilise the functionality of a monetary system, but one that is struggling against inadequate competitiveness and efficiency of the economy.
A central bank should not only facilitate a functional monetary system, but stimulate the productivity competitiveness and efficiency of the economy which that monetary system serves. Otherwise, that monetary system itself risks being broken in the long term.
For example, it does not help much in the long term for the RBZ to peg daily withdrawals or offer incentives for money received from relatives outside Zimbabwe, when as an economic entity people are not productive.
The RBZ may facilitate the transfer of monetary assets between employees and their employers, but the situation cannot be sustained is the economy remains productively uncompetitive and inefficient.
To distinguish a functional monetary system from the competitiveness and efficiency of an economy, consider the frequent scenario world over where banks are profitable over a time of slowing economic growth.
We should be able to separate the facilitating nature of financial services from the growth imperative that a financial sector must execute through stimulating productivity efficiency and competitiveness.
Unfortunately, the RBZ has been competent in the former and not as much in the latter.
This has been a sharp but reasonable criticism of Governor Dr John Mangudya; an exceptional service banker, however perhaps yet to be proven to be an economic growth financial policy-maker.
An economic growth financial policy-maker keeps a focused eye on the competitiveness and efficiency trends of an economy’s means of production.
In Zimbabwe that means we should trace comparative benchmarks of labour trends and capital utilisation, especially compared to our trade peers.
Dr Mangudya’s bank reforms have been disproportionately service facilitation focused, such as the aforementioned transfer of monetary assets between counterparties or within proprietary platforms.
This provides a functional monetary system. However, very few reforms have directly stimulated the benchmarks of labour trends and capital utilisation which provide the necessary competitiveness and efficiency to sustain that monetary system.
So, while the RBZ reforms focus on my ability to withdraw say US$300 or transfer my assets between counterparties, few reforms are of an impact that stimulates enough competitiveness and efficiency in value chains to provide quality opportunities for labour, thus enhancing my welfare to sustain the monetary system.
That is at a micro-entity level. At the macro-entity level, over the Governor’s term so far, formal employment has not increased notably.
This means monetary policy has not strengthened any value chains to assimilate informal labour involved in low value, unproductive economic activity into. Hence, more productive foreigners still provide much of our sustenance.
Indeed while SI64 is credited with boosting capacity utilisation, little evidence traces back to monetary policy stimulating capital utility for competitiveness and efficiency.
One can argue that Dr Mangudya has encouraged banks to loan hundreds of millions to sectors like agriculture.
But availing loans does not structurally improve the competitiveness and efficiency of a sector.
Competitiveness and efficiency are structural matters, and this is why the RBZ should get involved structurally, not at an arm’s length level where bank facilitation is perceived as enough.
This is how banks remain profitable in a time of slowing economic growth.
A central bank should have an influence on whether the entities receiving lending are becoming more cost competitive and productively efficient.
That is the difference between an economic growth financial policy-maker, and a banker’s banker.
Governor Mangudya must go beyond the functional facilitation purpose of banking and delve into the structural engagement of modern day central banks.
Last year, when asked how effective monetary policy can be in an economy, Bank of England governor Mark Carney responded: “Simulations using the Bank’s main forecasting model suggest that monetary policy measures raised the level of GDP by around eight percent and lowered unemployment by four percentage points.
“Without this action, real wages would have been eight percent lower, or around £2 000 per worker per year, and 1,5 million more people would have been out of work.”
There is a structural reference to his monetary policy which emphasises employment and real wages.
Hence, monetary policy is a structural mechanism. This is not popular perception in Zimbabwe, let alone in our evaluation of the RBZ itself.
Beyond providing a functional monetary system, to what extents has Governor Mangudya affected informal unemployment caused by uncompetitive and inefficient value chains?
To what extent has Governor Mangudya vitalised citizen welfare to sustain a robust monetary system?
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