So far, the implementation of the TSP has been aimed at recuperating an economy which had been dysfunctional for over three decades. Among its hallmark footprints to Zimbabwe’s economic turn-around is the much anticipated re-dollarisation (herein defined as the introduction of the local Zimbabwean currency as the legal tender for all transaction). According to the Ministry of Finance, this policy position is an exigent step which was needed in the addressing Zimbabwe’s economic inflation under the multi-currency system.
By Richard Mahomva
The Transitional Stabilisation Programme (TSP) has laid the foundation for fiscal consolidation at the same time generating sustainable budget methods.
Therefore, the merits of the country’s de-dollarisation process are briefly outlined from a broadly socio-political perspective.
Here, de-dollarisation refers to the elimination of the US Dollar as a legal tender in Zimbabwe. Zimbabwe adopted the multi-currency regime in 2009 to curb the ruinous hyperinflation. It has served its purpose and over stayed its welcome.
However, in 2016 the Government due to shortages of cash issued a surrogate currency, the Bond note which was trading along with the RTGS. The multi-currency basket composed of the United States Dollar (USD), South African Rand, British Pound, Botswana Pula and a wide-range of other foreign currencies, but the USD was the widely spread currency in the market. Most goods and services prices were pegged at parallel market based rates. This later invited the inter-bank rating intervention by the Reserve Bank of Zimbabwe.
What re-dollarisation means
The USD was taking about 90% of the transactional activity in the economy and the Government has no control over this crisis. Consequently, it was an imperative step for the Government to employ a bold policy move to expedite the re-introduction of the country’s currency.
The fundamental merit of this position is that the country’s sovereign dignity is restored as this is in synch with substantiating the transitional output of the Second-Republic.
This is a mark of sacrificial rebirth of a people’s dignity beyond political parameters, but a loud acclamation to realigning the correct economic fundamentals of a nation which had been long aborted to sustain corruption and illicit financial flows.
It was only appropriate that the Government had to take a responsible action to abate the monopoly of the economy by oligopolies.
As such, progressive Zimbabweans must support Government’s reintroduction of the Zimbabwean currency and in all logic and the call for re-dollarisation must be cast away from our development trajectory as this inclination only coincides with the retrogressive impulse to suffocate the country’s economic growth capacity.
Export growth potential has been suppressed by the dominance of the USD-centred economy.
This propelled the backbone of an import-based economy which offers an uncompetitive ground for local industry to flourish. As a result, the US de-dollarisation is a critical step in clamping the influence of the parallel market in fracturing the potential growth of the local economy.
On several accounts, the Minister of Finance, Prof Mthuli Ncube, all the fundamentals to deal with the new currency are now in place.
The Government has managed to record a surplus almost each month and has enough gold and other precious minerals to back the new currency. This goes on to substantiate the success output of the Transitional Stabilisation Programme (TSP) which among many other objectives was put into place to bring stability to the economy.
The long-term impact of this policy’s implementation will be noted through Zimbabwe’s economic actualisation of Zimbabwe earmarked at reaching a middle-income class status by 2030 as capsuled in Vision 2030 which among a plethora of goals stresses the need for: Improved Governance and the Rule of Law; Re-orientation of the country towards Democracy; Upholding Freedoms of Expression and Association; Peace and National Unity; Respect for Human and Property Rights.
The abandonment of the multi-currency system was inspired by the need to protect civil servants from local businesses that were now demanding forex for goods and services. The civil service was now up in arms with Government with valid points that they are paid in RTGS in an economy that had virtually dollarised.
The Zimbabwe Dollar (ZIM$) will now be the sole legal tender for all local transactions. The situation we were in were prices of commodities were packed against the black market rate of USD and prices of goods going up daily was not sustainable.
Civil servants were no longer able to buy good in shops, they could not pay for medicines and health care services when hospitals and clinics were demanding payments in USD.
The ZIM$ can help the general populace which was at the mercy of unscrupulous business entities. The scrapping of the multi-currency system on local transactions brings political and economic stability in the country.
The re-dollarisation approach is inclusive because the multi-currency system was now disenfranchising other citizens who were now unable to access goods and services priced in the USD.
This is a pro-poor and peoples intervention that will go a long way in bettering the livelihoods of our people.
The re-introduction of ZIM$ would help businesses to clear legacy debts on 1:1 basis as announced by the minister.
This is a very big plus to business, businesses are going to wipe off debts if they have enough RTGS$ balances and businesspeople will start on a new slate. This policy pronunciation serves both industry and the people.
The removal of multi-currency system would be central to re-industrialisation that was illusive under the USD. The intervention has prevented economic implosion that was being driven by the loss of value of the local unit due to market manipulation by parallel market foreign currency dealers.
The increase of forex on interbank market and issue of LCs would be a soft landing measure for industry to avoid economic shock.
The removal of the multi-currency system will further improve competitiveness and effort should be made to ensure importation of essential raw materials, capital goods, drugs, medicines, fuel and energy. Only companies that import raw materials should be given preference to get forex at the interbank market.
The promulgation of SI 142 0f 2019 has also helped the banking sector. The banks are now able to charge 50% interest on loans, this means banks are going to redeem some value from loans because the rate of inflation meant that what was borrowed would be meaningless in terms of repayments.
This has brought normalcy in terms of lending. The policy announcement stamp out borrowing for speculative purposes. The coming of ZIM$ has served the country from recession that we were experiencing and without our own currency it was going to be very difficult to move out of it.
The country has to move on and embrace its own currency and have independence in monetary policy formulation with Reserve bank of Zimbabwe (RBZ) playing the lender of last resort role in sync with the ongoing fiscal policy reforms.
The intervention gave RBZ full control of monetary policy to defend the value of the currency. The local market had continued to plummet due to black market activities, resulting in most people preferring the green back.
The outlawing of the multi-currency regime has restricted transactions to local currency to curb widespread market indiscipline that had seen traders quoting prices of essential products and services in USD and putting them beyond the reach of many given that majority earn local currency.