Zimbabwe finds itself ensnared in a crisis of confidence, a plight born from the tumultuous journey of its Reserve Bank in recent years.
Trust, once eroded, proves difficult to rebuild, especially when the institution tasked with monetary stewardship stands accused of betraying that trust.
What exacerbates this predicament is the dual role the Reserve Bank assumes — simultaneously policymaker and regulator, a precarious position indeed, for who then holds it accountable?
Zimbabwe’s economic saga bears witness to the tangled web of patronage and quasi-fiscal ventures woven by the Reserve Bank, contributing to the nation’s economic descent.
In 1999, the nation bid farewell to its original currency, a casualty of the Reserve Bank’s reckless printing spree. Apparently on instruction from the then sitting president Robert Mugabe who would just suggest printing more money instead of correctly addressing economic crisis.
Inspite of the introduction of ZWD notes hyperinflation continued to grip the land, giving birth to the infamous “maZero adzoka,” a testament to the folly of unchecked monetary expansion under the stewardship of Governor Gideon Gono.
A glimmer of hope emerged during the Government of National Unity (GNU), where fiscal discipline momentarily steadied the ship, and stability seemed within reach. The full dollarisation meant the country was back to using Fiat money that thrived or fell purely on trading activity.
However, the post-2013 electoral landscape saw a return to fiscal indiscipline, epitomized by Minister of Finance Patrick Chinamasa’s ill-conceived maneuver to clear IMF debts by confiscating bank deposits.
The hoped-for financial reprieve remained elusive, plunging the nation into a liquidity quagmire.
John (Bond) Mangudya, the Governor at the time, sought solace in the introduction of a local bond currency, promising parity with the USD—a promise soon betrayed as the currency’s value plummeted, triggering yet another crisis.
The Reserve Bank, meanwhile, continued its foray into quasi-fiscal activities, further exacerbating the currency debacle.
Governor Mangudya assured that the balance was backed by a loan facility at Afreximbank and that he would only ensure that printing would be done only upto the balance of that loan.
Overtime the promise not to overprint the local currency was broken. Before long the new Bond notes had devalued against the dollar and another liquidity crisis ensued.
The RBZ continued to engage in quasi fiscal activities backing private loans, running the interchange auction which followed a pegged exchange rate regime of which the rate was hugely discounted and many other activities such as issuance of T-bills that were redeemed at preferential rates only for certain politically affiliated individuals. A lot of loans were also given out to partisan individuals by the RBZ under the Command Agriculture scheme. And so on and so forth.
In the lead up to the August election government incurred a lot of expenses for patronage purposes buying motor vehicles for judges, cars for chiefs etc. In addition lack of preparedness during a drought has mean agriculture output has been very low raising food security concerns.
By December 2023 inflation was being measure by the Hanke index at over 1500% and officially at 50%.
In order to address the crisis the new Governor has announced the use of ZiG currency from Friday last week. This new , currency, ZiG, emerges, purportedly backed by gold reserves.
Yet, skepticism shrouds its legitimacy, as questions linger regarding the veracity of these reserves and the mechanisms in place to safeguard them.
It becomes evident that perception alone cannot sustain a currency. Confidence must be earned through transparency and accountability. The Reserve Bank, once entrusted with self-regulation, now requires external oversight to ensure its actions align with the nation’s best interests.
Perhaps, under the scrutiny of impartial professionals, backed by the oversight of international organizations like the IMF, Zimbabwe can navigate towards a future where trust in its currency is not just a perception.
That said without political will Zimbabwe will continue to find itself in cyclical economic disaster with each next crisis definitely worse than the previous one.
There must be political willingness to foster responsible stewardship and unwavering commitment to the nation’s prosperity.
Chenayi Mutambasere (Msc Development Economics and Policy) is based in the UK. You can follow her on Twitter: @Zimbabweyauya