The Sunday Mail
My article last week called for the introduction of the Zim dollar to circulate concurrently with the foreign currencies, some of which exist in principle anyway. Who has used the rupee or yen so far? I would like to elaborate how Zimbabwe can introduce a local currency that will be accepted by her citizenry, bring stability and productivity in the various sectors of the economy.
Many people have a problem with what I call ‘‘Zim dollar anxiety’’ and, once we start talking about the local currency, they begin to see bearer cheques flying randomly in the air, the floodgates of hyperinflation opening, queues mushrooming everywhere and many other weird stuff.
The main issue here is perception, the inertia and scepticism against venturing into the unknown. The people have every right to find comfort and solace in the status quo, having gone through that period of suffering.
However, we cannot continue to be happy slaves in Egypt, when there is a Canaan flowing with milk and honey that awaits.
What many folks are feeling right now about the local currency is not really unique.
Germany was also caught up in the same situation in 1923, and it is very important to understand how it managed it.
When Germany was fighting the First World War, it borrowed a lot of money to finance the war on the assumption that the money would be repaid by the enemy, after winning the war.
Germany accumulated a huge debt. When the war ended, it was forced to pay reparations and did not have enough money.
It therefore started to print money to purchase foreign currency to use in settling reparations.
This fuelled hyperinflation and just about every other experience that you folks went through in 2008.
Faced with serious economic challenges one would think that Germany abandoned its own currency, the papiermark, and dollarised, in order to bring stability and regenerate confidence.
The papiermark was initially backed by gold, but all the gold had been used to pay reparations, leaving it with no solid backing.
Would it make sense for an economy in that sorry state to introduce another new local currency? Backed by what?
Would it not quickly get in the Sunrise-Sunset spiral, where zeros will start to be chopped regularly?
Germany used innovative systems to introduce a new currency, the rentenmark, to circulate simultaneously with the useless papiermark, which led to an almost miraculous stability.
Since there was no gold to back the currency, the rentenmark mortgaged land and factories worth 3,2 billion rentenmark to back the new currency. What this means is that land and factory owners found incentive in paying their mortgages in the new currency, which created guaranteed demand and confidence for the rentenmark.
From the beginning, the new currency enjoyed a very high demand and folks of that time were said to be actually anxious to exchange their papiermarks into rentenmark.
There were actually long queues at banks, stretching out into the streets, as the public sought to acquire their own share of the new currency. What followed was an era of economic stability and progress.
Germany did not wait for the economic fundamentals to be up to spec in order to introduce a new currency. It immediately introduced a new currency which responded to the peculiar attributes of the context. There is a lot for Zimbabwe to learn from the rentenmark miracle.
Our abundant local resources are our passport to introduce the new currency.
Zimbabwe is the richest country on the planet in terms of resources per capita.
Those resources, however, need to be bankable for them to benefit the generality of the populace.
Following the rentenmark model, Zimbabwe can identify strategic resources to back the introduction of local currency, with the value of the identified resources being the amount of local currency to be printed.
This has enormous benefits that come with it. Let’s say all new stands, mining claims, agricultural land, inter alia, are sold to people strictly in new local currency, on a five year mortgage basis.
That would mean that there will be a huge demand and acceptance of the local currency.
The acceptance will cascade across economic agents and our local currency will be the currency of choice. For agricultural land that is allocated freely, a mandatory land tax payable in local currency will be effected, to provoke farmers to fully utilise the land and increase agricultural production.
That will also increase industrial production, since it has strong linkages with agriculture.
As the local currency get increased acceptance, the liquidity situation will also improve and the central bank will have more flexibility to protect the currency of Zimbabwe in the interest of balanced and sustainable economic growth, as espoused in the constitution.
At a recently held conference about monetary policy reform in the post global financial crisis, the IMF managing director said that the monetary policy should now play a major role in the economy, other than just focusing fundamentally on maintaining a low and stable inflation.
She said questions should now be asked whether the monetary policy should also include financial stability as an objective, and whether it should put more weight on growth, or unemployment, as the crisis reminded us that price stability is not always sufficient for output stability.
In view of this widening scope of the monetary policy, can we achieve financial stability and sustainable growth while only using foreign currencies which render sterile virtually all of the monetary policy instruments, such as open market operations?
We cannot deny that the dollarisation honeymoon is over, and that we ought to come up with a home-brewed solution, just like Germany did in 1923.
Our government should seriously take initiatives to understand our current context and introduce the local currency whose backing is anchored on the gifts bestowed to us in abundance by Mother Nature.
