Reintroduction Of A Local Currency: Tough Decisions Have To Be Made, Says Eddie Cross
Economist Eddie Cross, who is also President Emmerson Mnangagwa’s biographer, said the “gold-backed tokens” issued by the Reserve Bank of Zimbabwe (RBZ), is “a currency without any real support”.
The central bank recently availed the gold-backed digital currency, also known as Zimbabwean Gold (ZiG), for domestic transactions and also to be used as a store of value.
But writing on his website, Cross, a former member of the RBZ’s Monetary Policy Committee, said Zimbabwe does not have any significant gold reserves to back the currency.
Cross said he has gathered that the first sale of the tokens was taken up entirely in local RTGS dollars.
He said he agreed with President Emmerson Mnangagwa that no country had been able to develop its own economy without using its own currency.
Mnangagwa recently said Zimbabwe will ditch the multi-currency regime and revert to the use of a local currency but for Cross, “The question is how to affect the transition from what we have now and what has to prevail once the deed is done….” He wrote:
First, we have to have an alternative… In my view, we will have a new currency printed and this must be equal to about 15 percent of all such transactions in the market.
We should still encourage the use of electronic means to settle, but as a developing country with a large informal economy, we need cash.
Secondly, we need to protect the Nostro account system and allow people to bank real dollars into these accounts which should then be accepted as ‘free funds’ and to be available for individuals and companies to settle external liabilities.
This will allow people with US in cash to bank this and not lose access to USD or Rand for specific purposes. These balances should not be touchable.
Thirdly, we need to abandon exchange control on all current account transactions. This was done in 2009 when we dollarised but we need to recognise that exchange control is not appropriate in a free market economy.
Fourthly, we have to have a completely free market for all hard currency needs. Any Zimbabwean who needs currency should be able to buy what they want at their banks and Bureau du Changes, at the market price of the day.
All hard currency inflows, except personal transactions such as remittances, must be converted by the Banks into the new local currency at a real market price, based on supply and demand.
Fifthly, we need to demonetise all foreign currencies for local transactions. That means that foreign currencies will no longer be acceptable in local markets, taxi fares, hotels, service payments, taxes and all other local payments people have to make must be conducted in local currency.
That means that retailers and all others are going to have to have confidence in our currency and that means discipline in the monetary system. It also means that our local currency must be convertible into hard currency on demand.
That’s a tough list of basic decisions that need to be made to support the basic decision to re-introduce our own currency.
Zimbabwe currently uses a multi-currency monetary policy regime, which allows the use of foreign currencies namely the US dollar and South African Rand in domestic transactions alongside the Zimbabwe dollar.
According to Statutory Instrument (SI) 118A of 2022, the local currency and a basket of foreign currencies shall be in use until December 2025.
The SI which introduced the multi-currency regime is titled Presidential Powers (Temporary Measures) (Amendment of Exchange Control Act) Regulations 2022.
More: Pindula News
Tags
