Business Development

Is introducing new local currency a wise step towards Zimbabwean economic prosperity?

Mthuli Ncube

By Elvis Dzvene

As shortage of U.S. dollars plunges the financial system into disarray, forcing businesses to close and threatening civil unrest, the Minister of Finance, Professor Mthuli Ncube said Zimbabwe will introduce a new currency within the next 12 months as a solution.

Is the nation not wasting precious time by trying to cure symptoms at the expense of dealing with the real problem? And, what should be the correct logical sequence to re-introduction of local currency?

It is true that the reason why Zimbabwe is in this economic mess is because it is focused on symptoms than the cause of the problem and it tends to repeat the same mistake for decades. The relevant authorities strive to manage the symptom than addressing the problem. If I may to remember very well, liquidity shortages (shortage of U.S. dollars) is what led to introduction of bond nbotes in 2016.

For more than three times, the Zim dollar, bearer cheque and bond notes failed to run the economy. Is it not the same mistake to be repeated within the coming 12 months? What is peculiar on the coming local currency so that history will not repeat itself like what other local currencies did from 2008 till now?

The idea of monetary independence is noble but for now adopting it is like speeding in the wrong direction. There is need to turn the Zimbabwean economy into a conducive and stable environment.

It does not make sense to hold a paper that is useless outside the border zone. How can Zimbabwe reintroduce its currency in such an economic upheaval? Definitely, the currency will be shunned away on the international market and history will definitely repeat itself.

The fundamental conditions that are required before reintroducing a domestic currency are that we need a stable balance of payment for a minimum of a year, employment rate to be favourable for a minimum of a year, inflation rate to be below 10% for a minimum of a year etc. So look at where we are now! If we introduce local currency now, it won’t be competitive in the international market hence it loses value the same as the bond note.

What we need to do is to embark on another currency that has a stable value then boost our exports first to bring normalcy on balance of payment (BOP). Once we boost on exports, employment rate will increase due to production system and other fundamental bases will be rectified as we go. After a year in a stable environment, we can now reintroduce the local currency in dripping system whilst backed up by that foreign stable currency and withdraw the foreign currency bit by bit until the local currency gains the value on the international market.

Injecting foreign currency to easy current economic situation will work but it is a short-term measure waiting for another painful phase of same economic problems. As long as the Zimbabwean industrial sector is incapable of serving domestic market and incompetent in exporting large quality volumes of products, the nation is doomed to fail.

 

In a nutshell, it is important to note that a nation with a weak industrial sector is fragile to any economic shocks or problems and it is hard for it to have a positive influence on its monetary measures. Rather, its trading partners will control them. Whichever currency to be adopted, for it to be successful, it demands a functional industry to deal with capital flight.

 

Elvis Dzvene is a final year Undergraduate student studying Bachelor in Commerce Banking and Finance Honors Degree who write articles on his own capacity.

Can be contacted at +263775897093 / [email protected]

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Byron Adonis Mutingwende