The Sunday Mail
An open letter in last week’s edition of The Sunday Mail, written to Finance Minister Patrick Chinamasa by Mr Edmore Ndudzo, brought intriguing insights into the subject of demonetising the Zimbabwe dollar. I wish to interrogate some of the suggestions propounded by Mr Ndudzo, as we continue seeking the best method to optimally go about this noble exercise.
But I must begin by confessing that I did not know that Minister Chinamasa was calling for ideas on this issue. Not until he appeared before the Parliamentary Portfolio Committee on Finance and Economic Development where he is on record for having said,
“In my budget I spoke about demonetisation, where I sought ideas as to how we can demonetise the Zimbabwe dollar, and I am yet to receive a paper telling me on how to go about it.”
The minister spoke about demonetisation from section 942 to 946 of the National Budget Statement. However, having gone through these sections a number of times, I saw nowhere he sought ideas on how to demonetise the Zimbabwean dollar.
Ironically, the minister actually spoke conclusively about the issue to the end that one would get the impression that no further ideas were being sought.
In the statement, the minister said, “It is imperative, Mr Speaker Sir, that the Zimbabwe dollar is demonetised and that Zimbabwe dollar balances, including Zimbabwe dollar Paid-Up Permanent Shares (PUPS) balances are converted to US dollars for those accounts in financial institutions’ books as at 31 January 2009…
“Mr Speaker Sir, an indicative amount of US$20 million is required for this purpose … I propose that this matter be resolved by 31 March 2014 through the issuance of Treasury Bills to the respective financial institutions for them to further credit bank accounts of their clients in their books as at 31 January 2009. These Treasury Bills shall also be granted a Tier One Capital Status.”
From the minister’s pronouncements above, one clearly sees that he proposed the cut-off date for the Zimdollar balances to be considered, the deadline to deal with the matter (albeit unmet), the amount to be used in settling the matter, and other important aspects.
What more was to be said on this matter, on top of that? Be that as it may, it seemed good to me also to add on my views on this very critical issue in line with the minister’s new call that he is “yet to receive a paper” telling him how to go about demonetisation.
In my view, the most critical issue about demonetising the Zimdollar lies not in debate about its necessity but essentially in the exchange rate to be used in migrating from the Zimbabwean dollars to US dollars.
This brings me to my bone of contention with Mr Ndudzo’s submissions.
Mr Ndudzo argued that we should: “Convert the aggregate Zimbabwe dollar amount…into either US dollars or South African rands at…official exchange rates and not at any of the black market rates prevailing then… The resultant figure will…accurately and legitimately defines the extent and scale of Government’s financial obligation in this regard.”
What Mr Ndudzo is suggesting above is not only catastrophic but unsustainable to our economy. The said “obligation” will be passed onto the third if not fourth generation of our children.
That using the official exchange rate will “accurately and legitimately” define the extent of Government’s obligation is a complete oversimplification of matters.
We have to understand that many were earning their money illegally during the Zimdollar era, through “burning”. How ironic will it be for someone who earned his money illegally to have it converted legally!
What criteria would be used to discern those who earned their money legitimately from those who earned it otherwise?
The formal exchange rate used during 2008 was also not realistic.
Government introduced a willing-buyer willing-seller exchange rate management system in April 2008, with a view to restoring exporter viability. Through this system, the exchange rate would be determined on the interbank market on a willing-buyer-willing-seller basis.
By January 2009, the central bank had slashed a cumulative 25 zeros. At that time as well the formal exchange rate was US$1:Z$22, while the parallel market exchange rate was US$1:Z$2 trillion. The sharp difference speaks volumes.
If we are to convert Zimdollar balances into US dollars using the formal exchange rate, Zimbabwe will get in the Guinness Book of Records and the Book of African Records for having the highest number of billionaires on the planet, not mentioning millionaires, in US dollar terms.
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It will also pose a huge financial burden to banks and expose them to debts which they may take centuries to settle. Take, for instance, someone who was burning his money and had a modest amount of Z$22 billion in his bank account as at January 2009.
Using the formal exchange rate, this person will be entitled to get US$1 billion. As simple as that! Now aggregate that on a national scale!
It is impractical to talk about converting Zimdollars at the formal rate of exchange.
I was excited by the argument that was proffered by Dr Ignatius Chombo when he was asked in Parliament on July 16 about scrapping utility bills. In his response, Dr Chombo said: “The debts which we scrapped originated from the era of the Zimbabwean dollar. So, it is the Zimbabwean dollar era debts which were converted into the United States dollar era which we asked to be scrapped. When the debt you are accruing is genuine, true and correct, we cannot do that.”
In other words, monetary obligations arising from the Zimdollar era should not be allowed to result in Zimbabwe having worsened macro-economic conditions.
Just imagine what the new domestic debt of Government will be after the conversion, and the consequences in our prospects of attracting foreign capital. We just cannot afford to give this awkward impression about ourselves to the world.
The only exchange rate next to reality obtaining during the twilight of the Zimdollar era is the United Nations exchange rate, which was mainly used by the UN system and non-governmental organisations in Zimbabwe.
The exchange rate was US$1:Z$35 quadrillion, as at November 14, 2008.
If we are to use the above example of the person with Z$22 billion in his account, he will get less than a US$0,01, using the UN exchange rate. This exchange rate was constantly being altered in line with the ever-changing market trends of that time. It is my view, therefore, that this exchange rate ought to be adopted for the purpose of demonetisation, as it safeguards our economic interests.
Another innovative way of settling the Zimdollar account balances is to mint new Zimdollar coins for the purpose after first converting the balances into US dollars using the UN exchange rate.
The new coins will then be minted at an exchange rate of US$1:Z$1, and the coins will be given to all Zimdollar account holders.
They will, in turn, exchange them for hard currency notes with retail shops or banks.
The coins will be backed by gold and will go a long way in solving the change crisis. It will also ensure accurate pricing of goods, as the tendency has been to just approximate to US$1.
Business has already been calling for the minting of coins to avert the change crisis. Attempts to ship US dollar coins from America have proven futile when it was highlighted that it costs no less than US$1,50 to ship US$1 worth of coins, which is very expensive.
Banks also brought tonnes and tonnes of Rand coins from South Africa, which found no takers due to exchange rate asymmetries.
A sustainable solution to the change crisis, therefore, lies in the minting of our own coins.
We need to be careful in the modus operandi that we are going to adopt to demonetise the Zimdollar. We cannot afford to make mistakes with this sensitive issue.
