Ncube under fire over new currency plans

Finance minister Mthuli Ncube (pictured) yesterday came under fire from economists who accused him of rushing to announce plans to re-introduce the Zimbabwe dollar before addressing factors which led to its collapse a decade ago.

Ncube, who is in Washington DC for the International Monetary Fund (IMF) and World Bank 2019 Spring Meetings, on Thursday told United States-based Bloomberg Television that Zimbabwe would have a new currency within the next 12 months.

The minister also said the country would soon introduce a central bank reference rate as part of measures to save the economy from further collapse, apart from trying to close the ever-widening gap between the exchange rate for United States dollars in the official and parallel markets using real time gross settlement (RTGS) dollars, which the government introduced in February.

But economist John Robertson yesterday said there was need for government to first create a conducive environment to sustain the proposed new currency.

“The main implication is that the country will not have foreign reserves to settle foreign debts,” Robertson said.

“We can’t sustain a new currency if we still have billions in foreign debt. The value will fall because you will constantly want to convert it. We will not have respect of the new currency,” he said.

Robertson said lack of respect of the currency will cause inflation, as the country has witnessed with the RTGS$ that was introduced in February. After holding firm at 1:2,5 for a few days, the RTGS$ has plunged and pushed up the prices of goods, raising fears that the country could be sliding back to the 2008 hyper-inflationary era when Zimbabwe experienced a record 179,6 billion percent inflation rate.

“Inflation comes because of the weakening of the currency, if the currency cannot hold its value, it will collapse. Creating a conducive environment to support a new currency should have come first. Let us have a new environment first,” he said.

United States-based economist and currency expert Steven Hanke took to Twitter to chide Ncube, describing his decision to announce a new currency as “stupid”.

“Just when you think Zimbabwe could not pull another stupid rabbit out of the hat, it does so. Ncube says a new Zim currency in 12 months. What a stupidity,” Hanke tweeted soon after Ncube’s announcement.

Opposition MDC leader Nelson Chamisa weighed in, saying introducing a new currency without key economic fundamentals would not serve its intended purpose.

“The Zanu PF regime has to first address issues of market confidence, country-risk factor and legitimacy before even thinking of re-introducing the Zimdollar. Anything short of that would be a waste of resources and a mockery of people’s intelligence,” he said.

Chamisa added: “We deserve decent dignified lives; prices of staples going up such as maize and wheat affect the prices of maize meal and bread. Prices of basic commodities going wild! School fees have been revised! The RTGS$/US$ rates are falling. Savings have been eroded. Workers’ salaries remain unchanged.”

But economist Takunda Mugaga said Ncube’s announcement was a confirmation that the RTGS$ was simply a transitional currency and lack of confidence in it has caused its value to
plunge.

“The broad money supply has gone down, but the RTGS$ has continued to fall. Confidence is the reason why there are movements on the black market,” Mugaga said.

He said the RTGS$ would continue to adjust itself until it finds its value in the market. He said Ncube’s announcement would not have significant implications to the economy between now and the introduction of the new currency.