Why Zimbabwe must re-introduce local currency

By Addmore Zhou

The topic is probably the last one that Zimbabweans want to hear about and justifiably so. With the Zimbabwean dollar in free fall, the usefulness of money for all its basic functions such as medium of exchange, unit of account and store of value disappeared.

Gideon Gono, a seasoned banker who spent much of his career in the banking sector, has failed to steer the sector out of devastating monetary challenges.
Gideon Gono, a seasoned banker who spent much of his career in the banking sector, has failed to steer the sector out of devastating monetary challenges.

The country’s currency ceased to be a store of value as people lost their life long savings over night under a hyper-inflationary environment which had spiralled out of control. In response, the Zimbabwean government adopted the US dollar and the South African Rand as official currencies.

Whilst evidence on the ground suggests the strategy has worked to some respectable degree thus far, questions still remain regarding the extent to which the country can continue to operate the economy under dollarization and multi-currency system.

In general, relying on another country’s currency is living dangerously as its messy. The economy of the adopting country is directly affected by the policies of the other country especially with regards to the performance of that country’s exchange rate.

In the event of any of the currencies adopted by Zimbabwe crashing, the country will be directly affected to the extent of all assets and cash holdings denominated in that currency.

Although such a scenario is not expected or anticipated to happen in the short term, the long term possibility cannot be completely written off especially with the South African Rand.

Whilst South Africa has been a reliable and stable regional currency patron over the years, the country is facing a myriad of social and economic pressures whose future ending circumstances are not known.

In order for dollarization to succeed over the long term, there must be permission and mutual understanding between Zimbabwe and the US and South Africa, allowing Zimbabwe to continue adopting the US dollar and the Rand as official currencies.

However, the current situation is not sustainable as no mutual interest exists between Zimbabwe and the United States regarding dollarization. The current practice is undesirable given that Zimbabwe and the United States have limited bilateral trade because of existing targeted sanctions imposed against President Robert Mugabe’s regime.

Although meaningful achievements have been witnessed especially with regards to price stabilisation and restoration of some level of confidence in the economy, the country is still experiencing acute shortages of US dollar and Rand currencies particularly in the rural areas.

In some places, people have resorted to batter trading using livestock such as chicken, goats and cattle. Circulating a strong currency such as the US dollar among the general populace of a poor country such as Zimbabwe is no easy task. The finance sector is bedevilled by acute liquidity related problems.

Efforts by the government to borrow from the private sector have not been successful whilst financial instruments floated onto the market did not find any takers. That has worsened the country’s fiscal problems since no government can successfully implement its policies without borrowing unless it has a strong balance sheet.

Where a country does not manage its own currency, investors are not keen on buying and supporting government debt, hence the central bank has found itself failing to sell its bond and treasury bill instruments.

Among other problems, export trade has continued to suffer. There is no business motivation for importers in Asia, Europe and other Western countries to buy goods from Zimbabwe unless they are cheaper or not available locally.

A well-managed local currency is a strategic tool which the country can use to influence trade with other countries. China and Japan are dominating international export trade primarily because of their product pricing which is partly influenced by the value of their local currencies.

Countries with stronger currencies therefore find it cheaper to buy from these countries particularly China. Zimbabwe has a very conducive manufacturing environment because of very low labour costs. The job market is characterised by high unemployment levels and therefore favourable to manufacturing.

However, that potential may never be realised unless foreign countries see an economic imperative to buy Zimbabwean goods, hence the need for the country to have its own currency. Whilst dollarization has helped by eliminating devaluation risk, the strategy has not worked in attracting the much needed global capital and investment.

But which currency should Zimbabwe re-introduce? Is it the same Zimbabwean dollar? That is the most challenging part. The Zimbabwean dollar is associated with a bad image and the bad experiences associated with the currency may be difficult to shake off.  It may be a good idea to introduce new currency with a different name. Abandoning the dollar symbol may not be a bad idea after all.

In order for the new currency to be respected on the foreign exchange market, the government should take careful and necessary steps needed to create confidence in the new currency system. A phased introduction starting with coins operating alongside the US and Rand currencies is the best strategy. Only lower coin denominations should be introduced first.

The strategy will help to avail money for small transactions such as transport and daily shopping, promoting low level commerce whilst at the same time thwarting the possibility of currency hoarding for speculative purposes.

An important part of the process lies in the exchange rate management system to be implemented. A flexible exchange rate regime must be adopted. Previously, Zimbabwe found itself in a mess primarily because of the central bank’s practice of fixing the exchange rate coupled with reckless money printing activities. In the end, the system was subject to abuse by both the central bank and people in general.

A Fixed exchange rate regime works for stable economies which are not susceptible to foreign currency shortages. Efforts to create a fixed rate regime by any country with foreign currency shortages will most likely result in a parallel foreign exchange market. The initial floatation may however peg the new currency at par with the Rand. The economies of Zimbabwe and South Africa are inter-linked and the currencies are likely to have positive romance.

Another alternative is to join the Multilateral Monetary Area, formerly Common Monetary Area, which is currently composed of South Africa, Swaziland, Lesotho and Namibia. That way the Zimbabwean currency will be pegged at the same level as the Rand and other regional currencies. These countries’ economies are greatly interlinked and it makes great sense to trade with currencies which reflect their common social and economic backgrounds.

For that to happen, Zimbabwe must cooperate and comply with the requirements of the grouping, including all monetary policy frameworks especially with regard to quantitative easing and exchange rate management. However, the history of the central bank under the guidance of Dr Gideon Gono is one that is not encouraging.

Dr Gono, a seasoned banker who spent much of his career in the banking sector, has failed to steer the sector out of devastating monetary challenges. In fact, the governor is blamed for the country’s previous financial crisis attributed in part to reckless and irresponsible monetary policies under his governorship.

His monetary experiments which included continuous money printing among others went beyond prudent boundaries of economic management. If the country is to launch a new currency, the question is how will it be managed and by who? Common wisdom suggests the Central Bank needs restructuring especially with regards to its mandate and structure.

The operations of the Central Bank must be characterised by very little government influence. Because the governor is expected to be a highly technical individual, there is need to depoliticise the appointment of the governor by taking away that task from the President and pass responsibility to the board.

The government should however maintain its level of influence through the Finance Minister who must be given the responsibility of appointing the board. An ideal board must be composed of key stakeholders such as labour, industry and banks through various associations and other interest groups. In addition, the governor should not chair the board.

The current structure where the governor chairs the board creates a boss-subordinate relationship between him and the board, taking away the sense of responsibility and accountability. Global developments in the sphere of corporate governance have seen stakeholders increasingly questioning the wisdom of having chief executives doubling as board chairmen.

To achieve sustainable planning and undertake sound fiscal interventions, the Zimbabwean government needs various tools one of which is the country’s local currency. Financial instruments meant to ensure smooth operations of financial markets can only be introduced successfully if the country has its own currency. Without its own currency, the country will not realise meaningful economic growth and development.

Addmore Zhou is a business and real estate consultant.  He is a real estate graduate of Kingston University in London and an MBA Business Finance graduate of University of Liverpool Management School. His PhD research interest focuses on Real Estate Investment and Development in developing countries. He can be contacted on [email protected]

  • Clemence Homerai

    Zim$ hariiti zvachose.

  • Israel Chipere

    Usarote Gidza..

  • New money walks together with new president.

  • Horror

  • Tanyanyiwa Simion

    edmore zhou show this article to the old rural folks and pensioners who were left gasping after all their savings were lost and l will help them to castrate you

  • Ah ah ah,totanga futi zvema billion??

  • Michael Mapani

    Anoda kugadzira mari ngaagadzire hake yake.Mazuva ano havana rekuitaka guvhuna basa rakururohwa nana biti vane zvikoro kikikikiki.Vafunga kupisa kesh manje $ haripisike rakanyorwa kuti “IN GOD WE TRUST” hokoyo unotsva.

  • Michael Mapani

    Anoda kugadzira mari ngaagadzire hake yake.Mazuva ano havana rekuitaka guvhuna basa rakururohwa nana biti vane zvikoro kikikikiki.Vafunga kupisa kesh manje $ haripisike rakanyorwa kuti “IN GOD WE TRUST” hokoyo unotsva.

  • Nobu Ndlovu

    Eventually our proper money will. No to bearer cheques, otherwise for now handeii ne $US.

  • Fuc u Gono & o bytch Grace mgabe

  • Zviroto zviroto ngazviperere kuhope

  • Titus Dambiko Mahudah

    Zviroto zviroto ngazviperere kuhope nxaaaaa!!!!!

  • Vakuda kutanga kufarisa vanhu vaya manje

  • Hakuna zvakadaro no tarambara

  • Last Mambo

    I will hang myself if Zimdollar returns. there will be nothing to live for except hustling changing worthless bond-paper printed “money” on the streets…

  • needchange

    waitwaseiko kufunga zim dola.chinokanganwa idemo muti haukanganwi.

  • bhuratifuru

    unopenga addmore zim dollar rakafa and hatiridi zvachose

  • Ranganai

    The position on ZWD is evidence of the flight from reality that visits qualified Zimbabweans. Soon to be Dr Zhou sees currency as panacea. He blocks out national and international politics, sanctions, resource management, national unity & vision as if of no consequences. Brandishing the doctorate, he expects to join the ranks of Chiefs, not Indians, in Harare and pontificate on what should be in exchange an expensive life style. Touch down academic, this is the real world not a case study.

  • Killian Madziwa

    Vatanga zvokuda kuprinter mari manje, wats wrong with usd

  • Melo Muvingi

    Wakushaya zvekuita manje Gono. Wadini kuba mari yenyika wakanyarara noone will kill for being useless

  • marshie

    useles debate… Zim dollar iwo ma industries akavhara.

  • Nyaa Ndlovu

    umm dai mambotimira please aa enemies of progress

  • chikomana

    Any man who will support zimdollr with the current sitiation; I won’t blame him, he just dosent know what he wl be doing

  • takangai magona ma company tozo taura,mombo siya zvinzvimbo tozo taura.

  • Mike

    No 2 zim $. Spare us some time may be after 5 yrs. Asiyifuni le imali it gave us sleepless nights.

  • mava kuda kubira vanhu mari dzavo futi, hamunyare here. Muchafoseredza vanhu kuita maZim dollar movatorera ma USA avo, moidiriza futi mari dzavanhu dzoorera muma account. murimbwa dzavanhu.

  • Mozotiudzawo.

  • Jones Tonderayi Marodza

    So that they can print money for themselves never not now!!!

  • Usdollar viva .vana Gono itai mushe

  • Makukanganwa chazuro nehope, makuda kuti tiende kumarara kunonhonga dzatakarasa futi.

  • Scholar

    Some compelling arguments. My thoughts are it is implausible to introduce the Zim dollar. The current events show our economy still has underlyin structural fragilities to withstand shocks as a result of Zim dollar. Zimbabweans have no confidence in the local currency bottomline. Any talk of manipulating local currency is a red herring meant to divert attention to the curren noise in the market created by political bickering, corruption and regulatory forbearance leaving investors with a wait and see attitude. Lets improve the political and regulatory framework first and attract FDI.# JUST A THOUGHT.

  • Israel Chipere

    It’s true Kereke did your PhD.Anyone in his normal senses will never utter such rubbish..

  • Admiree Shumbahuru

    Dzungu hakusi kungwara Doctor, isai bhora pasi mudenga hamuna nhandare

  • Alec Dzino

    Shit gono to hell

  • Kuda

    If u ask anyone they will tell u they are happier under the US$ than Zim$. U say there is danger if the US$ collapses bt what is the probability of the US$ collapsing than the Zim$ collapsing again soon after being reintroduced. U say some ppl have resorted to barter trade, bt form2 commerce tells us money should be scarce. I dont know how to explain bt this article was written by an idiot. U know the advantages of using the US$ why u hide from them i dont know why, probably personal interests. I can write a 3 page article why we shld stick to the US$

  • Nqobile Ndiweni

    No matter how bad the Rand or Dollar get, Lord knows it can never be as pathetic as the Zanu inspired free fall. Give us a break the Zim political landscape is still uncertain wats going to make the watever u call it new currency be more stable.

  • If the govt is serious about a local currency why not reintroduce it in Gold, Platinum and silver coins? What stops you from introducing these denominations? No paper please. The only way you can make things right is by putting these kinds of coins in circulation. Come on “spread the wealth”

  • Anonymous

    Take your time!

  • Paul Also

    Zim dollar is a no go area and a non starter. Every Zimbabwean, leaders included are keen money dealers and we will drift into the hyper-inflationary mode within weeks of our own currency reintroduction.
    Let us not venture into those murky waters again, we are right where we are now with the US$. The only noble thing to do is for the government to work hard, have fiscal discipline, operate with a cash budget, allow relaxed laws for those who have money to resuscitate industries and that will facilitate proper and genuine economic growth. It will be slow but genuine.
    The government must apply for coins from the American and South African governments to help our cashflow problems in the trading market. We can live with the US$ forever, we don’t need the Zimbabwean $ anymore. Thank You.

  • Nyika Kubudirira

    Hate him, love him, but The Governor is very correct. Rationale here: No industry is fucntioning to bring the US$, Liquidity crisis is slowly reigning supreme, We are dying a paiful slow death. That is why you see people slowly turning to illicit drug dealing because there is no longer money here. Running a controlled ZimDollar concurrently with other currencies in this economy will help bring back industry back to its feet.

  • wycliff

    do u think if we introduce local currency our economic structure will be stable

  • Murcus

    You my friend are either hopelessly naive or just an idiot. If you cannot see that the proposals for fiscal discipline that you put forward will not be followed then you have not really lived in Zim. You should go and do something more productive with your time like farming for instance, instead of wasting our time of half baked arguments!

  • Matuzvi kunhuhwa

    Iwe gono haunyariwo here. moda kupamhazve kurwadzisa vanhu, vachine misodzi pamatama. moda kugadzira mamwe kuti mupe maborder gezi kuti vatange kuuraya vanhu futi. kana kuchinzi kune masatani, ndimi nevakadzi netuzukuru. muchaita rwagadafi. hamuna nyadzi makaita seiimi? tichasunga machende enyu nerekeni, nonsence.we r tired

  • Chibhanzi

    Yesterday I was talking to fellow African friends and was asking why African leaders seem to be the only people who do not realise they can turn resources into cash.

  • Chibhanzi

    Looking at Admore’s credentials he should be capable of making a comparison and come to a reasonable conclusion why Zimbabwe is in this mess. The currency is not the issue; its having leaders who are answerable only to themselves. At least the US$ stopped the hyper-inflation which ruined people’s lives for ever. Have a responsible government and evrything else will flow.

  • mastashocks

    masuwa kuti bira mari mumaaccounts medu muchiti yarohwa neinflation u dogs!!

  • Sampongani

    Wakuda kuitawo cash pamusika mutema?

  • wit

    Hanzi rural folks are finding it difficult to have money, so u want to print money to give rural folks. this writer akadzidza kupi. People should work for their money.

  • milton muparwa

    tangai mauya kuzogara kuzim vazhou mozotaura zve zim$

  • Joko joko

    Bearer cheques riri valid kwe 1 dae no

  • mukanyadzoka

    before they create new money they need to create new jobs. these fools in office have it the other way round.

    • simon

      really fools indeed. Group of so called educated men not knowing what is priority no.1 in their country. MY PRESIDENT(R.S.A) Jacob Zuma is desciding to buy your country, including your president that I believe, would just be tossed to the very hungry dogs in your coz him alive has prooved very useless. He has a granite stone had, cannt take advices from other people

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