The Sunday Mail
Chris Chenga: Open Economy
For the greater part of the last two decades, Zimbabwe has been an economy driven by speculation and arbitrage. In conventional economics, such would be unflattering. However, it is a fair proposition that the impulse of speculative arbitrage began in the hyperinflationary years of the Zimbabwe dollar. At the time, it was as much about hedging against losing the value of one’s hard-earned income as much as it was about making a profit.
In such considerations, it is unfair to mention the speculative arbitrage in Zimbabwe as a deplorable impulse of our society. Rather, it is unfortunate circumstance.
Greater worry is that the Reserve Bank of Zimbabwe, supposedly cognisant of this market reality, has often seemed passive or incapable of rectifying what has almost become second nature in the very market it serves.
The last six months have found Zimbabwe in a worsening liquidity crisis.
This has made hard cash in the form of the United States dollar a commodity that can be bought and sold in the market. Was this unexpected in a society primed for speculative arbitrage?
Many have ventured into selling hard cash at varying margins depending on amounts on offer.
The RBZ has tried to encourage habits such as plastic transactions that draw the market from requiring cash, but the central bank has been unable to strike effective psychological attrition of cash.
This has been the RBZ’s greatest weakness over the last two decades, and has arguably seen it lag behind in comparison to its global peers.
Globally, central banks are informed on market dynamics and the sentiments influencing the predominant economic impulses on the market.
It is becoming widely acknowledged that central banking and monetary policy are as much about psychological conditioning as they are about regulating a monetary system.
The RBZ, unfortunately, still believes in hard hand regulation without psychological persuasion; which is archaic governance. This is why many policy intentions — such as trying to get people to use plastic money and less cash are not met with market reciprocation.
The RBZ is not effective in psychological priming.
Moreover, not only should a central bank be able to tap into the psychology of the market, in fact, the relationship must be mutual.
The market must have a certain level of understanding of central bank thinking.
Mario Draghi, president of the European Central Bank, once remarked to a conference of central bankers that, “A transparent central bank is not only more accountable, but also more effective in implementing its monetary policy. If the general public and financial markets can understand how their central bank is likely to respond in a given situation — its so-called ‘reaction function’ — they can form reasonable expectations about future monetary policy and align themselves accordingly for monetary stability.”
In Zimbabwe, unfortunately, monetary policy does not work that way.
The impending introduction of bond notes was announced at least six months ago, yet today the market is far from aligned accordingly.
The central bank has failed to tap into the psychology influencing society’s monetary behavior, and society cannot bring itself to reasonable comfort of intended monetary policy.
Indeed, the economic case for bond notes can be explained in theory; perhaps even to a point of indisputable fact. I attest to that.
Similarly, the economic case for plastic money can be well-versed.
However, it will only be when the RBZ starts to respect citizens as economic agents who represent a market will that theory become practical.
A market of economic agents requires psychological persuasion.
This is a pre-requisite to successful implementation of almost all monetary policy.
When that persuasion is effective, then the market is primed to be in the right state of psychological condition to respond desirably to monetary policy.
The RBZ has not done enough to attend to the market psychology and each passing day, it seems introducing bond notes is either experimental, or intentionally disregarding of preparatory psychological conditioning.
Considering our current economic state, neither approach is responsible.
What is needed right now is mutual certainty that the market and RBZ complement one another in bond note psychology and intended outcome of the instrument.
As is, different stakeholders lack clarity on how the bond notes will affect their day-to-day operations, their long term business prospects, as well as other matters that relate to their respective stakeholders. All these lead to “uncertainty” which simply means inadequate psychological conditioning in anticipation of a policy. It is time the RBZ and Government start to seriously reflect on the soft matters of policy, particularly in terms of how they perceive citizens.
Often, criticism is that Government monopolises policy-making. I disagree.
In recent years, Government has made an effort to engage diverse stakeholders; from industry to consumers.
However, those efforts have not been adequate.
The route cause being that the engagement is not guided on full understanding of what citizens represent as an economic entity and the reciprocal relationship that has to exist between them and Government.
