Zim should strengthen multi-currency regime

HARARE - Zimbabwe should concentrate on strengthening the multiple-currency regime if real economic growth is to be achieved, economists say.

Vitaliy Kramarenko, a centre coordinator with the International Monetary Fund (IMF) said introduction of the multicurrency system brought significant stability in the country hence the need to retain it.

“Zimbabwe should strengthen the multi-currency to ensure its sustainability and further leverage its benefits,” said Kramarenko in his presentation on Zimbabwe’s currency regime and monetary policy in Victoria Falls.

He argued a premature reintroduction of the Zimbabwean dollar and de-dollarisation by decree could give rise to significant economic challenges.

“If the public does not welcome the new currency, defacto dollarisation would continue, creating a risk of disintermediation in the banking system,” he added.

Zimbabwe adopted the South African rand and American dollar in 2009 following a decade of hyperinflation and economic stagnation.

Kramarenko said the country should however, avoid deviation from fiscal discipline and labour market rigidities in order to enhance effectiveness of the prevailing currency regime.

Under such conditions, he added, attempts at monetary policy and lender of last resort functions would be largely ineffective and could in fact be destabilising.

Recapacitating the Reserve Bank of Zimbabwe (RBZ) to assume its role as the lender of last resort, he added, is key to the currency system.

“There is need to complete restructuring of RBZ to create confidence. For it to assume its role as banker to government, there is need to deal with the RBZ debt issue.”

Speaking on the same subject, Zesa chief executive Josh Chifamba said dollarisation had helped the utility company to collect more and useful revenue from consumers.

“Predollarisation, people could pay an equivalent of $1 for 10 months and we had to import most of our things in United States dollars.”

Macroeconomist and director for Econsult Botswana, Keith Jefferis said though, it was possible to introduce a new Zimbabwe currency, its credibility would be an anthill task as it was eroded during the hyperinflationary environment.

“The currency would be workable in the context of a currency board arrangement or CMA (quasi fiscal board). CMA offers several advantages, despite some drawbacks, on balance it is the most attractive option,” said Jefferis.

Jefferis concurred with Kramarenko’s remarks saying the country’s hyperinflation and monetary control history proved there was need for a currency system that guarantees economic stability.

“A credible nominal anchor for prices is an essential pre-requisite of a sustainable monetary and exchange rate policy arrangement,” he said Since the introduction of the multi-currency regime three years ago,
Zimbabwe has become a lucrative market due to availability of hard currency.

Inflation rates have also stabilised while the gross domestic product registering growth.

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