‘Zim Dollar experiment was doomed from the start’

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Harare-based economic commentator Prosper Chitambara says the Zimbabwe dollar “experiment” has failed because the fundamentals needed for it to succeed were not in place when it was introduced.

Some of the prerequisites for a functional and stable currency include a strong and independent central bank; high productivity and production, among other things, Chitambara said.

The economist warned Treasury against quantitative easing, that is, printing money, saying this will fuel inflation. Chitambara posted on Twitter:

The Zimbabwe dollar experiment and ‘policy misstep’ was never going to succeed because the right institutions i.e. a strong and independent central bank; high productivity and production; trust and confidence among others were and are not yet in place. Economies are not commanded into prosperity.

It’s a very easy way to run a nominal budget surplus through quantitative easing.

The only problem with quantitative easing when you are a highly consumption-oriented economy in an environment of low productivity is that sooner or later, you will end up in a situation where ‘too much money is chasing too few goods.’

Earlier this month, Finance and Economic Development Minister Mthuli Ncube revealed that the government will resort to “quantitative easing”, among other things, to raise the $18 billion economic stimulus package.

Quantitative Easing is a monetary policy whereby a central bank injects money into an economy. It is generally considered to be an unconventional form of monetary policy.