The Sunday Mail
I refer to an article that appeared in the Opinion and Analysis section of The Sunday Mail of August 3, 2014, under the headline “Demonetisation: Let us tread carefully”, written by Clemence Machadu.
The article was a commentary on my open letter to Finance and Economic Development Minister Patrick Chinamasa on demonetising the Zimbabwean dollar in the previous week’s edition of The Sunday Mail.
I found Clemence Machadu’s insight very exciting and useful.
I thank him for bringing to my attention sections 942 to 946 of the 2014 National Budget Statement.
I was, however, pleasantly surprised that the modus operandi suggested therein for demonetisation was substantially in agreement with and in harmony with the one I tried to put forward to the Honourable Minister.
I now wish to make additional contributions to this very important national issue in light of Mr Machadu’s ideas together with my own thoughts and ideas on the same.
My view on Government’s total liability is that it is made up of the aggregate of Zimbabwean dollar balances in financial institutions (mostly banks) and prescribed assets value dominated in the local currency, which Government borrowed — and not the sum of Zimbabwean dollar balances and paid up permanent shares (which should be settled by the financial institutions concerned) as contained in the mentioned sections of the 2014 National Budget Statement.
As should be appreciated, it was the Government default on these prescribed assets chiefly, among other causes of course, which placed pension funds and insurance companies into precarious financial situations that continue to haunt these very entities.
I take note that the cut-off date of January 31, 2009 seems to be the favourite of most parties, and I also support it, although I had also suggested December 31, 2008 as an appropriate alternative date for some good reasons.
I also noted that the modus operandi for settling the domestic debt initially by way of issuance of local Treasury Bills seem to enjoy general favour. I wish to point out, though, that foreign or local bonds, Treasury Bills floated offshore or some such other suitable foreign or local monetary paper, can also suitably serve the intended purposes well.
I agree substantially with the view that Machadu put across that the critical issue on the subject of demonetisation is not so much as to how to undertake it, as it is about the exchange rate to be applied in the process.
I, however, disagree with his suggested use of the then United Nations (UN) exchange rate of US$1: Z$2 trillion for various reasons.
After the very last dropping of the 12 zeros, then called revaluation (the Reserve Bank seems to have cumulatively slashed 25 zeros by January 2009 as mentioned by Mr Machadu), there were very few Zimbabwean dollar bank balances of billions in accounts, let alone trillions left in them.
The same went for prescribed assets then dominated in Zimbabwean dollars. The common highest levels then were millions (but I stand to be corrected on this).
The point to emphasise here is the need to independently audit the figures given in this regard.
Converting the aggregate Zimbabwean dollar Government liability at the suggested official rate of Z$22:US$1 will result in an admittedly massive foreign currency amount in billions, given the magnitude of our GDP.
This, to me, is not a complete over simplification of matters, but leads to accurately and legitimately defining the sextent and scale of Government’s financial obligation in this matter.
This obligation will not be catastrophic or unsustainable to our economy as feared and will not necessitate settlement by three or four generations of our children, as mentioned by Machadu.
We are over-dramatising matters here.
It can be settled by sustainable and regular tranches by one generation, or by one big bullet payment on switching to a local currency which can be printed by the RBZ, or with the grace of the Almighty, on the realisation of some unexpected financial windfall by our nation.
I never came to understand the phenomenon which was at the time referred to as “burning” in orthodox economic terms, but will be most appreciative if Mr Machadu would educate me on this.
My view is that Zimbabwean citizens are entitled to compensation for their Zimbabwean dollars in their accounts, notwithstanding how these dollars were earned, as long as they were not laundered or were obtained from other commonly known illicit dealings.
The UN exchange rate which Machadu seems to suggest was just but one of several “black” market rates at the time, and can never be said to be legal or considered “holier than thou” merely by virtue of its association with the esteemed UN.
In any event, the UN official rate we may have to use, if we settle for the January 31, 2009 cut-off date, would, in my view, be much closer to the suggested US$1:Z$22, of that I am reasonably confident.
I find the idea that Machadu put forward of minting new Zimbabwean dollar coins quite innovative.
The Zimbabwean dollar coins can be backed by gold and/or one or two of our other precious minerals, as suggested.
I would, however, suggest an exchange rate of US$1:Z$10 in this regard to partly address the now perennial twin challenges of change and pricing of goods and services in United States dollars.
Subsequent to my open letter to Honourable Chinamasa on this matter of demonetisation, he contacted me by phone wishing to solicit my views on the issues to do with the reasonableness of the then suggested official exchange rate of Z$20:US$1 and the position of those who were left with nil Zimbabwean dollar balances reflecting in their bank accounts after the slashing of the very last 12 zeros.
The sentiments by the minister and his apparent concern over the plight of the affected account-holders seem to be at variance with Machadu’s imagination of trillions presumably still sitting in those same accounts at cut-off date, come to think of it. I have since responded in writing to the minister on the two issues he raised for his consideration, and availed a copy of my response to him to The Sunday Mail.
Allow me to once again express my appreciation to Clemence Machadu for his thoughts and ideas on this very important issue of national significance, which is crying out for urgent solution and resolution.
Lest we forget, the whole mess originated, with disastrous consequences, from the manner dollarisation was handled in mid-2009 when at the very least a first attempt should have been instituted to compensate the Zimbabwean dollar with either the US dollar or the South African rand when the Zimbabwean dollar was officially discontinued.
National Budget statements from 2010 right up to 2014 correctly alluded to the need for demonetisation of the Zimbabwean dollar, with the amounts quoted for the purpose ranging initially from the ridiculous US$6 million dollars to the more recent but still grossly inadequate US$20 million.
Regrettably, nothing was ever implemented on the ground.
