Zimbabwe is to start printing its currency following the announcement on Monday that it was abolishing the multi-currency regime and designating the Zimbabwean Dollar or bond note, as sole legal tender for all local transactions. This against a backdrop of runaway inflation of as high as 100% and a thriving parallel exchange market.
The announcement caused panic and fear among citizens who have little or no faith in the local currency, but authorities came out quickly to allay the public fears.
Zimbabwean President, Emmerson Mnangagwa, says that they have normalised their domestic issues.
“We have normalised our domestic issues. We were living under an abnormal financial situation, but now we have normalised that and we are moving forward. In this transition, there will be a lot of confusion, but it’s so clear that we shall continue to have either workshops or pronouncements on radio and so on as to what it is actually we are doing. The most critical thing is we are doing the right thing or not the right thing; we believe we are doing the right thing.”
The opposition MDC has described the government’s action to impose a ban on the use of multi-currency as illegal and unconstitutional. It says a court action is in the pipeline.
Former Finance Minister, Tendai Biti, however admitted that it was becoming expensive and unsustainable to continue using the US dollar and that the country needed to join the regional rand union instead.
“In the long term, the US dollar is not sustainable for a number of reasons; it’s overpriced so it makes our exports so expensive, it also makes the cost structure of this economy so expensive. In the last two years alone, the US dollar has revalued by 19%, so for a small economy like this, it’s so uncompetitive. The other thing why I like randification is that I am not a nationalist. A lot of the arguments you hear about the return of the Zimbabwean dollar are found in the emotion of nationalism. To me, true nationalism is good governance, it’s the rule of law, it’s constitutionalism, it’s strong institutions and not the currency you use.”
The country’s central bank will print an extra $400 million in bond notes to cover the gap left by the withdrawal of hard currencies. Economist Tony Hawkings believes this will actually increase inflation as more money will be injected into an already struggling market.
“The issue facing the economy is not per say an economic issue. At the end of the day, the solutions to the problems are fundamentally political or social. You can change currency as often as you like, but you are not going to change the underlining fabric of the economy.”
The country’s biggest labour union has given the government a five-day ultimatum to reverse its decision; or face massive protests and the next few weeks are critical for the already struggling southern African economy.
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