HARARE - Since adoption of the multi-currency regime in 2009, following a multi-billion percent inflationary meltdown caused by rampant money-printing, spawning critical cash shortages — debate has been raging on whether to adopt the rand or not.
Discussions on this will certainly gain renewed currency after President Robert Mugabe last week hinted that Zimbabwe should adopt the rand to mitigate the country’s severe liquidity and cash challenges, despite fierce resistance by Reserve Bank governor John Mangudya and Finance minister Patrick Chinamasa.
Debate on whether or not to “randify” is apparently intensifying behind the scenes at high levels in government as the worsening currency crisis is now a cause of grave concern to monetary and fiscal authorities.
Mugabe says he has repeatedly proposed introducing the South African rand as the common legal tender.
“Well, I don’t know why the ministry of Finance together with the Reserve Bank have not wanted to use other currencies. I have asked actually again and again kuti why not have euros, why not have yuan, why not have rand alongside with the (US) dollar?
“Ah tichazviita, tichazviita (Ah, we will do it, we will do it),” Mugabe said in his traditional televised 93rd birthday interview.
This has all been sparked by the worsening liquidity crunch and cash shortages.
An unsustainable trade or current account deficit, poor balance-of-payments position as well as massive revenue leakages and an uneven distribution of liquidity in the market have worsened the cash crisis.
Veteran economist John Robertson told the Daily News on Sunday that Mugabe was shifting blame to his chiefs.
“The strange thing about these pronouncements is that the president has executive powers.
“The same way he stopped Chinamasa from cutting civil servant salaries and foregoing bonuses is the same way he would have simply asked them to introduce the rand,” Robertson said, referring to the September 2016 fracas when the Finance minister got a slap down from Mugabe after announcing a raft of measures to slash government spending, which included a suspension of civil servants’ bonuses, wage cuts, job cuts, and a range of other austerity measures.
Chinamasa’s austerity measures also imposed tax on civil servants’ allowances, coupled with a promise to axe 25 000 workers, citing budgetary limitations.
“Why is Zimbabwe not using the rand?” Robertson asked rhetorically.
“That is the question you should be asking, because clearly, someone in this matrix is not telling the truth.”
Just last year, reports emerged that the Zimbabwean and South African governments were nearing closure on the formal adoption of the rand by Harare, during a continental summit in Ethiopia.
While the agreement never saw light of day, economics guru and adviser to the Office of the President and Cabinet, Ashock Chakravarti, insists the short-term answer to Zimbabwe’s cash shortages is rand adoption.
“There have been discussions with the South Africans. They are willing to get paid for their exports in rand.
“They are willing to accommodate us in the financial sector, so there is no issue. All it needs is a law or statutory instrument re-denominating US dollar balances into rand and say the rand is the currency in circulation.
“Countries monetise or demonetise all the time and they change their currency, so I do not see any issue here.
“I know the country has been told that we need to join the Common Rand Monetary Union (CRMU) to use the rand, but this is simply not true,” Chakravati told delegates at a recent Confederation of Zimbabwe Industries (CZI) round table.
The University of Zimbabwe professor said adoption of the rand would benefit Zimbabwe immensely and rescue its imploding economy.
After numerous calls from all quarters to adopt South Africa’s currency, the Reserve Bank of Zimbabwe (RBZ) has ruled out the adoption of the currency or joining the sub-regional CRMU, citing the volatility of the currency.
South African stocks kicked off 2017 in positive territory as a platinum rally spurred producers of the precious metal, while dollar strength knocked the volatile rand into the red.
Addressing a National Economic Consultative Forum (NECF) meeting in the capital Harare recently, RBZ deputy governor Khupukile Mlambo said while the US dollar was not an ideal currency on account of the numerous “headaches” that came with it, adopting the rand carried more risks.
“We need to understand that the .. rand has its own challenges: it is volatile… There is also the issue of joining the Rand Monetary Union and we cannot do that without our own currency,” Mlambo said.
But Chakravarti said: “We do not have to join the CRMU to adopt the rand. This is a long term issue which we can consider and decide whether it is to our benefit or not, but the adoption of the rand can be done overnight. It can be done tomorrow.”
CZI president Busisa Moyo has said manufacturers believe that adopting the rand was the way to go.
“Individual members of CZI have come out strong on randisation and I think we need to have some sort of action towards this.
“I do know that companies are already starting to do this and opening rand accounts.
“We also need to move the RTGS (Real-time gross settlement) system so that it allows for transfers in rand without having to convert to US dollars.
“So our banking and economics and CZI chief economist need to work on some sort of mock or draft statutory instrument on randisation, what it means, and we start pushing that forward,” Moyo said.
South Africa is Zimbabwe’s major trading partner, with almost 40 percent of imports from that country.
According to Chakravarti, rand adoption will allow for an increase in financial inflows from South Africa.
Shane Helberg, area manager of Zimbabwe, Botswana and Mozambique at leading independent international financial consultancy deVere Group — which has around $10 billion under advice from 80 000 mainly expatriate clients globally — has also backed adoption of the rand by Zimbabwe.
“Zimbabwe’s adoption of the rand as the main trading currency within the country’s multi-currency system should be championed.
“Whilst the rand perhaps is not as weighty as the US dollar for international trade as it is more volatile against major currencies, it must be noted that the dollar has not been effective in arresting the free-falling economy in recent times,” Helberg said.
His remarks came after the Bankers Association of Zimbabwe (Baz) stated that adoption of the rand would be one of the measures required to address the cash shortages facing the country.
And, investment-parched Zimbabwe could also use it to boost investment.
Zimbabwe’s currency basket has over the years become dominated by the greenback due to its global appeal and demand.
As a result, externalisation has been rife, with independent estimates pointing out the country needs close to $1 billion in cash to plug its dollar deficit and return to liquid normalcy.
Zimbabwe needs $900 million in order for normal cash-to-deposit ratio to be achieved. But, currently, the country has real cash of only $304 million.
According to Chakravarti, the ideal cash-to-deposit ratio is 15 percent to prevent liquidity problems, but Zimbabwe’s current ratio is a measly four percent.
At the moment, Zimbabwe has $232 million US dollars in circulation, with a shortfall of almost $650-700 million.
And while the country introduced a parallel currency in the form of bond notes last year, Chakravarti said even with full issuance of the surrogate currency, the cash-to-deposits ratio remains pathetic.
“Even a full bond note issue of $200 million will not make a difference. If ratio of bond notes to US dollar is increased beyond current proportion, then it will no longer be a multi-currency situation and premiums will start emerging on US dollars versus bond notes.
“As the cash shortage deepens, this premium will rise and can be viewed as representing the depreciation rate of the new currency in the form of RTGS balances.
“The value of all deposits will decline in terms of real US dollars,” the economist said, adding bond notes could ease the liquidity situation a little bit, so long as there was an adequate supply of US dollars.
When Zimbabwe adopted the multi-currency system, total deposits in the banking system were $1,6 billion.
Hard cash circulation has since slumped 53 percent to $304 million currently from $642 million in 2013.
In spite of this, bank deposits have increased from $4,7 billion in 2013 to $6,2 billion in 2016.
“So, you see, given all the cash statistics, Zimbabwe needs to adopt the rand. South Africa is already a major trading partner so importing the rand will not be a challenge and there are also remittances from Zimbabweans based that side.
“When the multi-currency system was adopted, I told them the rand was the way to go and I will still say it.
“The situation would not have gotten so out of hand. Rand externalisation is a better situation over US dollar externalisation any day,” Chakravarti said.
Economists said to address the liquidity crunch gripping the economy, authorities must swallow their pride and take decisive action by just adopting the rand.