The raging currency debate that for long has occupied the economic discourse in Zimbabwe, should not be about having the Zimbabwe dollar in circulation, but on how to keep it stable, Finance and Economic Development Minister Mthuli Ncube has said.
Minister Ncube’s remarks come at a time the value of the local dollar has been decimated on the parallel market that is widely used by the private sector to access foreign currency and for modelling prices.
Officially, the Zimbabwe dollar is pegged at 25:1 against the greenback but on the parallel market, it has depreciated to 70:1 to the US dollar from 23:1 in January this year.
The resultant impact has been hyperinflation that reached 765,57 percent in April. This has compromised the standard of living with a family of five now requiring an average of Z$7 425,81 for its basic requirements. This figure is several times above the salary of the lowest paid civil servant and general workers in most companies.
The wage erosion has, however, led into many questioning Government’s decisions to re-introduce the Zimbabwe dollar.
But responding to a question in Parliament last week that Government considers reintroducing the use of the multi-currency system, Minister Ncube reiterated that there is nothing wrong with the country having its on currency.
He said focus should not be on whether the local currency is weaker than the US dollar, but should be on making it stable.
In fact, Minister Ncube said the local currency should be weaker than the US dollar as this encourages competitiveness and import substitution.
“When you have a weak domestic currency, what it does is it encourages import substitution because it makes imports more expensive; that is a positive thing.
“For those companies that are exporting, they get more in domestic currency and that is what redefines competitiveness,” said Minister Ncube.
He said Zimbabwe lost its competitiveness when transactions were anchored on the US dollar and had to resort to statutory instruments to protect industry from cheap imports.
“We lost so much competitiveness during the use of the US dollar in the main although we had RTGs balances that we were also using to a point where I recall that we had to introduce import duties so that we do not get too many goods, especially from South Africa and we were de-industrialising. We had to do that to protect our industry, why, because our currency was not competitive.
“So our debate really is about currency stability and not about whether it should be there or not. It is there, we should keep it.”
On how to stabilise the local currency as well as prices, Minister Ncube said Government was committed to fiscal discipline.
“We want to make sure that we keep our budget deficit under control and also as you know we have also made sure that we stop using the RBZ window.
“The whole of 2019, we have not used the RBZ overdraft window. We are staying far away from it and we want to live within our means and do some borrowings where we can but even the borrowings are well managed. I can assure you of that; so we are making sure that on the physical front we are not the problem.”
He, however, said there are still problems on the monetary front where regulation is unable to keep tabs of what is going on in the face of a currency volatility situation.
“On the currency front, I think it is fair to say that part of the reason for the movement in the parallel market, which is linked to pricing, is through to the regulatory environment.
“Our regulation environment like elsewhere in the world was never geared up to manage mobile banking platforms,” he said.
He said while monetary authorities were very good at managing banking institutions they did not know how to regulate mobile money platforms.
“We hope that at some point we will bring in some new rules to fine-tune the regulatory environment so that we can bring sanity to the use of our mobile banking platform, which has been very helpful in this cash shortage situation.
He said there was also need to manage growth of high powered money or M-zero to make sure it does not add to the volatility in the weakness in the parallel market, in the exchange rate which then feeds to inflation.
He said the medium to long term goal should, however, be on putting emphasis on productivity and import substitution “so that we can put less pressure on the currency by producing more and exporting more and raising our productivity so that we can grow our economy.”
“You will find that our stimulus package is focusing on that and dovetails with what we pronounced in the budget for 2020,” said Minister Ncube. – Business Weekly