The Sunday Mail
So demonetisation of the Zimbabwean dollar is finally happening. It reminds me of the constructive debates I had with my old man, Mr Edmore Ndudzo, several months ago.
“Mugabe to leave Zim without a currency” is the headline in the latest edition of the Zimbabwe Independent newspaper.
The paper postulates that: “It is almost certain that he would die before the return of the Zimdollar, something that will ensure he would inevitably leave a disastrous legacy for the country” – whatever that means.
Of course, the writer of the story was basing that on the personal opinion expressed by Reserve Bank of Zimbabwe Governor Dr John Mangudya who had earlier roughly estimated – while addressing editors – that the United States dollar “will be here, in my view, for more than 20 years”.
I like Finance Minister Patrick Chinamasa’s response on the Zimdollar return issue better.
“It’s not a simple and straightforward matter,” he has said.
In my view, we cannot give a quantitative, but qualitative, sunset to the multi-currency system, and sunrise to the Zimdollar.
Ian Smith tried to be quantitative when he said, “I don’t believe in black majority rule ever for Rhodesia, not in a thousand years.”
Fortunately, or unfortunately, Mr Smith lived to see a good 27 years of black majority rule, starting a few years after his declaration, until he was promoted to glory on November 20, 2007, at around 7pm!
Today, it could have been 35 years of black majority rule for him.
I have a bias for qualitative approaches, as numbers often conceal more than they tend to reveal.
They can embarrass too.
Numbers let Mr Smith down.
For the ZimInd to hypothesise that “Mugabe will have to live to at least 111 years old if he is to see the return of the local currency”, I hope their words won’t one day be like those of poor Mr Smith.
But, if I want to be controversial, I would ask the ZimInd whether bond coins are local or foreign currency.
Coins, I hear, have a lifespan of 50 years. 50 vs. 20? !#%&*
Oh, cowboys like me hate being quantitative and controversial, by the way! So off with that one!
Maybe let’s talk about the monetary policy announced last week by the central bank Governor.
So demonetisation of the Zimbabwean dollar is finally happening. It reminds me of the constructive debates I had with my old man, Mr Edmore Ndudzo, several months ago.
I am glad to note that the governor has taken on board some of our suggestions, especially that the United Nations exchange rate must be used for the demonetisation process.
The UN exchange rate was used during that time by the UN system as well as non-governmental organisations in the country.
The governor has indicated in the monetary policy that the bank shall soon publicise the modus operandi of the demonetisation process.
I recommend that the governor further incorporate some of the issues we proposed with Mr Ndudzo.
But for now I want to interrogate some of the issues surrounding what he has already told us.
Firstly, the cut-off date of December 31 may bring complications when intending to use the UN exchange rate.
This is because the last recorded UN rate was that of November 14, 2008, when the rate was US$1:Z$35 quadrillion.
Is the Central Bank going to use this rate for the December 31 cut-off?
The UN rate was rising sharply during that period.
It rose from US$1:Z$40 billion on October 30, 2008 to US$1:Z$1.1 trillion on November 1, 2008; to US$1:Z$35 quadrillion on November 14, 2008; to US$1:Z$???? on December 31, 2008 (the cut-off date).
We must also think along the lines of simply using November 14, 2008 as the cut-off date.
Be that as it may, the UN rate remains a very realistic approach on demonetising sustainably.
This is because the official exchange rate of that time was ridiculous.
Take the day October 8, 2008, for instance, when the official exchange rate was US$1:Z$298, while the diary of the mad black market recorded a rate of US$1:Z$180 000, with the UN rate at US$1:Z$1,5 million.
It is for this reason that I argued in my article of June 22, 2014, titled “Zimdollar payments require due diligence”, that the differing exchange rates reigning during the Zimdollar era require us to tread carefully when demonetising, lest we find ourselves making commitments we cannot sustain.
I know the use of the UN rate is much to the embarrassment of the central bank which was setting the official exchange rates (and now don’t want to be associated with them), but we now have to be guided by what is practical and is in the best interest of our economy.
Now that everyone owed is getting compensated, it is my hope that there will be no more false excuses from those who were complaining that their lack of trust in bond coins is arising from the unfortunate events of their Zimdollar accounts which were frozen with no compensation being made.
I also noticed from my reading of the Monetary Policy Statement that individuals continue to be among the biggest consumers of total bank loans, accounting for 21 percent.
Individual loans are actually higher than the loans which were allocated to agriculture, financial services, construction and property – put together.
What is also saddening is that consumption lending constituted 54,2 percent of total loans as at September 30, 2014.
This habit of individuals borrowing to consume is not sustainable for our economy.
More education is, therefore, needed on investment for individuals.
Banks should offer investment lessons as a precondition to accessing loans; not this habit of just approving a loan within an hour of submission – to what end?
The coming in of deposit-taking micro-finance institutions in the financial sector is largely expected to increase financial inclusion.
However, it is my view that it will also bring more competition for already existing clients in the banking sector – given the sad reality that banks are moving at a snail’s pace in innovating and reaching out to the unbanked.
As there will be more competition for existing clients, this will reduce their profits and compel them to increase rates as a means to stay in the game.
The monetary policy has also clarified that bond coins are legal tender in terms of Section 44 of the RBZ Act.
We read in Section 44(2-3) of the Act that: “A tender of payment of money within Zimbabwe if made in coins of current mass which have not been demonetised in terms of subsection (3), shall be legal tender.”
I remember salvoes being fired at me a few weeks ago for arguing that bond coins are the strongest currency in Africa.
It’s always a pity that we have individuals driven by ignorance who join debates prematurely without familiarising themselves with the fundamental framework of the discourse.
If funny items like salt, cocoa bean, tea bricks, squirrel pelts, potato mashers, Lobi snakes, whales’ teeth, knives and stones have once been used as currency in this world – why can’t bond coins be recognised as currency?
It must also be noted that the strength of a currency is also not derived from how much you hate it, but rather from how much it can buy compared to other currencies.
I am, therefore, still to be shown an African currency that is stronger than bond coins.
The central bank is also arguing that the poverty datum line should be re-defined so that it focuses on PDL per person as opposed to a family of six.
“Thus, if the current PDL of US$584 in Zimbabwe is divided by six then the figure becomes comparable with the rest of other countries at US$97,33,” argued the governor.
The mistake, of course, made by the governor here is to confuse PDL with the consumer basket that is calculated by the Consumer Council of Zimbabwe.
The figure of US$584 is the CCZ’s consumer basket for last month. PDL is calculated by ZimStat and the last record stands at US$499,81.
But I tend to have a different view and still believe that PDL should still be calculated on the basis of a family of six, because we are a high unemployment and low-income economy.
