The Sunday Mail
Chris Chenga Open Economy
The context of externalisation by the RBZ was appealing to a nation disillusioned by corruption and misappropriation of resources. It is neither economic nature nor is it a right for every country to have a currency of its own. Underlying currency existence is the extent of productivity competitiveness of independent nation states, or nations that come together to form a currency union. As experienced through our own history in Zimbabwe, the sustained existence of a currency is never guaranteed.
Rather, amongst other less significant factors, the sustained existence of a currency is particularly sensitive to the productivity capacity of an independent nation, or a group coming together under a currency union.
Throughout history, numerous currencies have been conceived and in widely varying forms. For instance, commodity-backed currencies have varied in keeping parity to different commodities such as state land or minerals; as well as monetary guarantees such as reserves or debt obligations. More recently, towards the end of the last century, fiat currencies generally functioning on the forces of demand and supply, though largely stabilised by the sentiments of confidence and faith have become more prominent.
What has remained consistently true, however, throughout the century’s long history in which currencies have been in existence is that all forms of currency have either been sustained or met their eventual demise by productivity competitiveness.
It is important for us to retain consciousness of the productivity imperative that either sustains or demises the utility of a currency, in whichever form it may be.
Since the era of hyperinflation, as individuals, we have groomed an emphasis and perception of currencies merely in the context of exchange rates, downplaying the productivity imperative that actually influences those exchange rates and, more significantly, the continued viability of respective currencies in how we manage our personal economics.
Indeed, hyperinflation also awoke our impulses for arbitrage and hedging currency rates; understandably so, as at some point, these were impulses directly linked to our continued livelihood.
As an industrial base in Zimbabwe, entities have developed perceptions of currency within a rigid context of trading.
As industry has trimmed value chains from productivity activities towards trading activities, currency has been much more defined on its trade context rather than its productivity context.
It has been a long time since currency has kept parity to productivity activities in the value chain.
Instead, currency has only become as relevant as the tradable downstream services and activities to satisfy whatever stage our industry finds itself along the value chain.
Thus, what is mutual within our perceptions as individuals and the industrial base of Zimbabwe is that we have diverted away from understanding the productivity imperative of currency; all currency alternatives that find space in our public discourse. Consider our public comprehension of the liquidity constraints taking effect on the United States dollar.
Only at the periphery of public discourse do we hear the more precise prognosis that we are simply out-competed off the US dollar by more productive regional peers.
It is regrettable that the Reserve Bank of Zimbabwe engaged discourse with the context of externalisation and the subsequent exchange control regime, for it was not the most significant factor to explain US dollar shrinkage in the economy.
Low confidence, particularly in the productivity competitiveness of the economy, was the most significant factor in US dollars pouring out of the economy.
Also harmful is the over-emphasis on current account figures without similar regard for capital account investments.
The frequent current account references are evident to the aforementioned trade perception of currency that also still resides at the highest levels of monetary discourse.
More reference, and a more precise productivity perception, should be made to the fact that capital investments into Zimbabwe over the last five years have been cumulatively less than five percent of GDP.
Indeed, one should not be alarmist, but this must be perceived as a matter of national concern.
Simplified, out of a value of 100 of economic activity, in the last five years, less than five of that economic activity has been investment into productivity capacitation.
No currency in history has ever sustained such a structural imbalance, and before engaging the US dollar shrinkage on an externalisation footing, this capital investment imbalance should have been the focus of emphasis from the central bank.
What the US dollar is moving away from in Zimbabwe is the low productivity capacity that for five years has stood at less than five percent investment to GDP ratio.
So let currency flow whichever direction it wishes and currency always flows to where there is greater productivity capacity.
The context of externalisation by the RBZ was appealing to a nation disillusioned by corruption and misappropriation of resources.
As individual citizens and our industrial base — both economic segments retaining trade perceptions of currency instead of productivity perceptions —many of us failed to identify the precise cause of US dollar shrinkage.
The liquidity crisis is simple to explain: until we enhance our productive capacity in Zimbabwe, the US dollar will continue disappearing.
Before we entertain any pivot to alternative currencies, which Government has rightfully disqualified, we should focus on the question: Does our productivity warrant the sustenance of any currency?
