The currency question has become a contentious issue in the country’s economy on the back of biting cash shortages and spiraling commodity prices in the last two years.
The situation has heavily crippled the productive sector, with the Confederation of Zimbabwe Industries (CZI) blaming the trend for subdued manufacturing sector capacity utilisation, which remains on average below 50 percent.
While some experts have suggested adoption of the South African rand, others argue that the introduction of bond notes in 2016, as an export incentive and measure to ease demand for foreign currency in local transactions, has done more harm on the currency front. The Reserve Bank of Zimbabwe (RBZ) insists the bond note option has greatly assisted the economy, especially in boosting exports.
However, in his latest article on how to awaken Zimbabwe’s economic recovery, Prof Ncube, suggests that President Mnangagwa’s government should review and suspend use of bond notes if the economic recovery process is to make significant success.
“I was one of the people who were of the idea that Zimbabwe should adopt the rand and join the Rand Monetary Union for a 7 to 10-year period. This is because South Africa accounts for 80 percent of Zimbabwe’s trade. So, clearly you want a currency that is linked to your largest trading partner.
“But I don’t think I want to argue that now because things have moved on and we are at a new juncture. What I would argue now is that we remove the bond notes currency because it is becoming a surrogate currency to the Zimbabwean dollar without the macro-economic credibility to support it,” wrote Prof Ncube.
“The bond note currency is bad money and we know that in economics, bad money drives out good money. It’s not surprising that the US dollar is now in short supply because people are not banking them. So the immediate course of action is to remove the bond notes and then let the US dollar become the core currency but over time we have to bring back the Zimbabwe domestic currency.”
According to Prof Ncube, the scrapping of bond notes will deal with liquidity issues in a big way.
He was, however, silent on the problem of externalisation and illicit financial flows, which were cited by monetary authorities as a key factor to the shortage of cash prior to adoption of bond notes.
Zimbabwe has been using the multiple-currency system since 2009, with the US dollar as the main mode of transaction. Prof Ncube further suggested the issue of domestic debt needs to be dealt with through Government expenditure patterns.
“We have 80 percent of Government expenditure going to wages, which is not productive. That picture needs to change to where we begin to see a bigger share going to the more productive and more investing side of Government activity,” he said.
“There are people who lost monies during the dollarisation, that issue has not been completely resolved. We need to go back and look at it and see how best we can resolve it and restore what people lost.”
Prof Mthuli Ncube is a respected Zimbabwean citizen with vast experience in the economics field having worked in the private and public sectors, academia and international financial institutions.
He is the former vice president and chief economist, African Development Bank and board member of the Official Monetary and Financial Institutions Forum (OMFIF) based in London with offices in US and Asia.
OMFIF provides support and advisory services to central banks around the world and pension funds and other investors on monetary policy, macro-policy, investments and financial markets.