The Zimdollar

THE RETURN OF THE ZIM DOLLAR
The past few weeks has seen the reigniting of the debate on the Zimdollar’s return euphemistically referred to as the gold backed dollar, a practice that has since been abolished where the amount of money and currency in circulation is commensurate with the value of gold held in stock by the state. Many including the central bank chief have called for this gold backed dollar arguing that this makes perfect sense in light of the improving production level of not only this commodity but other precious commodities and some economists support this. On the hand the finance ministry contends that it is not possible and now would be wrong timing because the general economy has not really recovered that much to warrant such a change. Now before taking any decision one has to understand the circumstances that prompted dollarization of the economy in first place despite the earlier resistances by authorities to allow this. Dollarization or multiple currency system as it is commonly known essentially means a country will abandon its own currency in favour of a more stable one from another country and as history will show countries are forced dollarized when their own currencies become worthless due hyperinflation. It does not necessarily follow that when an economy dollarizes it has to be the US$ that is chosen to act as the base currency although in most cases it is the greenback that is chosen because of its widespread acceptance and the US’s status as the world’s major trading nation. Now the story of dollarization did not exactly start with the coalition government but it started as far back 2005 though by then it was not pervasive and was quite subtle. Back then dollarization was less overt  because the regulations and laws enacted then criminalised trading in foreign currency without  licence suffice to say only a few individuals or companies had such licences. The practice then was to indeed to trade in Zimdollar however the price would then be heavily inflated to compensate for the expected depreciation of the Zimdollar therefore prices would be in local currency yet these prices consistently tracked an equivalent price in foreign currency. A very good example was the price of fuel which during period changed quite rapidly as traders sought to keep pace with the rate of depreciation of the local unit consequently while the price did not change in US$ terms it did significantly in Zimdollar terms and this reflected the rate of inflation and depreciation. This practice grew quite rapidly in latter stages of that hyper-inflation period up until the coming to be of the coalition government which ultimately formalised dollarization by setting the greenback as the country’s base currency. At that point the country’s currency was virtually worthless because no one accepted it as a trusted medium of exchange one fundamental attribute of currency or money hence resulting in its eventual disappearance. Clearly as we can see here dollarization occurred spontaneously, businesses and citizens suddenly refused to trade in the Zimdollar despite the risk of arrest in some cases. Therefore we can conclude from this that dollarization took place informally meaning at least not officially and this occurred a few years before the birth of the coalition government. We also have to put into perspective the central bank actions during same period and how this may have contributed to the total erosion in confidence with the local currency. The central argued at the time that since the government could not access loans from the multilateral lending institutions it had no option to but print money to keep the economy afloat however the intended outcome of printing would be offset immediately by the resultant massive rise in inflation. In addition to exacerbating the inflation situation, printing of money fuelled the waning confidence in the local currency to a point where ordinary people had to demand foreign currency as means of paying. For instance in the high density suburbs landlords reportedly demanded foreign currency or even foodstuffs as payment for rentals while rural folk were also reported to have resorted to barter trading. These two examples simply underline just how severe the non –acceptance of the Zimdollar had reached and it is so hard to understand how the same folk that rejected the Zimdollar 5 years ago would readily accept it now. It does not matter that we refer to it as the gold backed Zimdollar because as long as the system that caused its demise in the first instance remains then there is little chance of it succeeding now because for instance already there is anxiety about what would result with many predicting a gloomy aftermath of its return. In other words it means there is very little confidence in it and quite rightly the timing is really bad because national production has not really peaked and there is no real transparency where remittances of minerals revenue is concerned . Another reason which perhaps could be the most significant one working against the return of the local currency is the loss of entire life savings, pensions and fixed deposits investments suffered by most people during this period. This admittedly was a very traumatising experience for many but especially for our senior citizens in particular who had to suffer losses of entire savings and there has not been any kind of compensation for the vanished savings. How do you then encourage such a person to believe in the financial system again, to accept the Zimdollar or whatever you call it? It’s a hard sell. Authorities need to study and research on how other countries that dollarized in the past managed to eventually re introduce their own currencies. However what they are certain to discover is that most of these countries did so only after having given the economy enough time recuperate using the stable currency. Also whilst the local currency was reintroduced, foreign currency was allowed to remain legal tender for some time to give the sceptical population enough time reacquaint themselves with the new currency and this helps because it does not disturb the economy. While indeed the local currency has to return at some point to allow the country to run its own monetary policy, this only has to happen after the economy has fully recovered and when enough reforms have taken place at the central bank to the satisfaction of the population then people may entertain this topic

Terence Zimwara feedback 0733406743 or tem2ra@yahoo.com  or temra-temra.blogspot.com