The Sunday Mail
A FEW years ago, when I was in Durban, South Africa, I went to one of the malls to do some shopping. I had some United States dollars in my wallet and my list of the stuff I needed to buy was close by.
Editor’s Brief
Victoria Ruzvidzo
I did not think it would be an issue that I had dollars, instead of the rand. It was the world’s most powerful currency then and, obviously, it would be acceptable everywhere. I was coming from home where the multi-currency basket was in use.
But I got the shock of my life when the shops I went to insisted on the rand and looked at my US dollars and at me as if I had lost my mind. They would not budge. They made it clear to me, not in the most pleasant diction, that it was either the rand or no deal at all.
My Mastercard was not funded and all the bureaux de change and banks were closed. It was the last day of the conference I had attended and my flight was early the next morning, so I flew back home with my crispy US dollars and my list.
This is how some countries give value to their local currency. It is either that or nothing at all.
Debate has been raging in this country on whether we should dollarise completely, keep the dual currency or adopt the local currency exclusively. Some believe dollarising is the best route to take given the way in which the local currency has been battered and yet many others are swearing by their mothers that the rightful and sensible thing to do is to adopt a mono-currency system, where we begin to use just the local currency for all transactions.
Since the introduction of the basket of currencies in 2009, Zimbabweans have derived great comfort in using the USD, which seems to have given consumers lots of buying power while it has become a good store of value, particularly in instances where the local currency has become volatile.
The affinity to the dollar by most people is understandable.
But the use of the local currency has more long-term benefits that need to be considered. Confidence should, therefore, be built around the Zimbabwe dollar.
The Government is already making deliberate efforts to promote the use of the local currency. On Friday, the Ministry of Finance and Economic Development instructed that the June Quarterly Payment Dates (QPDs) be made in local currency for 50 percent of the foreign currency portion for their corporate tax obligations.
“However, when the law requires the tax liability to be paid in local currency, taxpayers are compelled to settle such tax obligations exclusively in local currency. Government will, therefore, not accept any in USD or any other foreign currency for the portion of corporate income tax due in local currency for the June QPD,” read the directive.
Those with insufficient Zimbabwe dollars to meet the local currency tax obligations were encouraged to approach the central bank through their banks to facilitate disposal of their US dollars to access the needed local currency.
“Government is committed to continuing the currency reforms that have enabled the economy to be competitive and will continue to fine-tune the foreign currency markets in order to achieve lasting price stability,” said Treasury.
Increased use of the Zimbabwe dollar could induce the price stability the economy desperately needs. Indeed, a single currency can help to promote price stability by reducing currency fluctuations.
This can make it easier for businesses to plan and budget for the future.
Business Weekly deputy editor and economic analyst Kudzie Sharara said the economy has much to gain by adopting the mono-currency strategy.
He said using the Zimdollar only eliminates the need for currency exchange, which can be expensive and time-consuming. This can reduce transaction costs for businesses and individuals.
Furthermore, he said a mono-currency system can help to promote trade within the country, thus making it easier and more efficient to conduct business. This can lead to increased economic growth and development.
A single currency can promote greater transparency in the financial sector by making it easier to compare prices and exchange rates while it also helps to improve the monetary policy. It enables central banks to implement policies that are better suited to the needs of the country or region. This can help to promote economic stability and growth.
Indeed, a mono-currency arrangement can enhance monetary policy by giving policymakers greater control over interest rates and other monetary tools that can impact economic growth and stability.
These benefits are what the doctor ordered for the economy to return to a growth trajectory. The addiction to the USD may need to be dispensed with as we hurtle towards Vision 2030.
Zimbabweans need to take pride in their local currency. But this demands that the central bank and the Ministry of Finance and Economic Development embark on an educational campaign to alert people on the benefits of using the local currency exclusively.
Where shops here reject the local currency for the USD, the tables must turn and they do it the South African way of insisting on the rand if it is a cash payment.
In September 2016, the economy was caught in an almost similar situation when the central bank sought to introduce bond notes. There was quite some resistance but Reserve Bank of Zimbabwe Governor Dr John Mangudya would not budge.
In an article I did then under the Business Focus column published in The Herald on September 29, 2016, we captured the stance by the central bank then.
Below is a reproduction of submissions by banker Lameck Gweshe quoted in that article.
His observation and analysis are relevant today as it was then.
“HOW TO CREATE DEMAND FOR BOND NOTES
So much has been said for and against bond notes such that no one has attempted to walk the middle of the road approach driven by what will really benefit me , the man on the street.
The man on the street is afraid that the ZWD will return and justifiably so but at the same time he has been hard hit by the illegal externalisation of USD by dealers. It will also be foolhardy for the Gvt to abuse this privilege and overprint these bond notes. The Gvt has become too technical they have forgotten to communicate with the man on the street. Surely, how do I explain 5 per cent exporters incentive to my mum farming in Glendale under the resettled farmers programme when I don’t even know how it will work.
Bond notes can work
The Government , as the biggest spender and collector of taxes, can structure bond notes such that they won’t owe anyone any apology or explanation. Here is how:
- BOND NOTES AS GOVERNMENT CURRENCY: Introduce bond notes as a Government currency, not national currency. This means that the currency will only be recognised when transacting with the Government. For example, Innscor, Delta or Econet can apply to RBZ to issue own currency that will be acceptable by its debtors and creditors in its own closed economy. I mention those three because I once advised them to do that to help alleviate the liquidity situation.
- TO ADDRESS THE SUPPLY SIDE: All suppliers of Government services and goods will be paid in bond notes (or partially in bond notes). All direct deductions from Govt payroll will be settled in bond notes i.e. medical aid, loans, funeral policies etc. These measures are a sure effective way of introducing bond notes into circulation than the export incentive something — maybe because I do not understand it. Everyone will kill to do business with Government on Government terms.
- TO ADDRESS THE DEMAMD SIDE: the Government only needs to implement the following measures — All or a percent of income tax, PAYE and VAT will be payable in bond notes. The percentages will be influenced by monetary policy as Government seeks to regulate supply and demand. All Government institutions and local authorities to start charging 100 percent or partly in bond notes e.g. passport, office, toll gates, municipalities. Retailers (e.g. supermarkets) will be forced to accept bond notes since they will require it to pay VAT and PAYE on their staff.
- MANAGING OVER-RELIANCE ON USD: To manage the impact of the strong currency on our economy, the Government should charge and collect import duty using
- Country of origin of the goods or
- The currency of the neighbouring country at the port of entry to the extent that it is in the multi-currency basket
- Lastly USD
For illustration, imports from Zambia will be charged in USD but those from South Africa will be charged in rands. But if any of these have originated from UK, then they must be charged in pounds.
- THE HARD PART: When you have issued a Government currency, you must be bold enough to have banks open a separate account for it unless you intend on abusing that privilege. This is where confidence is being lost. No sane citizen will allow Government to print bond notes and integrate them with USD without being accountable to anyone.
The Government must print amounts that are driven by their own supply and demand i.e. the bond notes in circulation should be the lower of payments by Governments and collections through taxes. This way the value of bond notes can be kept in check. Imagine taxpayers running from bank A to bank B in search of bond notes to pay taxes because they are in short supply or having to actually seek dispensation to pay in USD because they couldn’t raise enough bond notes.
- POSITIONING: Let us find a better name for this Government currency. Positioning is everything.
With these measures, the Govt won’t owe anyone any explanation. The rule will be simple and that is: when you deal with us, play by our rules. We all know what could happen if the Government then prints more bond notes than can be absorbed back through taxes. The rest I leave to economists.”
In God I Trust
