Published by the government of Zimbabwe
8 August 2008
editorial
Harare — IT is now more than a week since Reserve Bank Governor Dr Gideon Gono presented his 2008 Mid-Term Monetary Policy Statement, which saw the introduction of a new family of banknotes in $1, $5, $10, $20, $100 and $500 denominations.
The newly-introduced Zimbabwe dollar which came into circulation on August 1 is now less 10 zeros.
The RBZ also announced the reintroduction of old coins (10 cents, 20 cents, 50 cents, $1, $2 and $5) at their face value, and the introduction of new coins worth $10 and $25.
The new currency is working concurrently with the bearer and special agro-cheques, which will be phased out in December.
In addition, the central bank increased the cash withdrawal limit from $100 billion (old currency to $200 in the new currency.
As recommended by the National Incomes and Pricing Commission, businesses were required to show the prices of goods and services using both the new and old currency for the convenience of the shopping public.
When the reforms where announced, the monetary system was already seriously challenged with cash shortages and incessant price hikes. It is every Zimbabwean's hope that these reforms are the foundation for economic recovery.
The return of the coins: boon or problems?
The reintroduction of old coins into the monetary system continues to be a source of both excitement and frustration, considering that coins were last used in 2003.
Since last week, cartoonists have had a field day with the coins.
Those who had kept the coins, for "posterity" suddenly found themselves with a lot of money at their disposal, enabling them to purchase a variety of goods and services.
One family was seen buying a brand new lounge suite with the old coins.
Since last Friday, some businesses - bottle stores especially - have been enjoying roaring business with buyers paying with the old coins.
In this regard, their revaluation has been of more importance than just the public's convenience.
The impact of the "coin craze" was also evident when dumpsites in most urban centres became instant treasure troves, resembling Chiadzwa as people were digging around looking for the precious coins.
However, not all has been rosy.
Some service providers have been rejecting the coins as legal tender. These range from commuter omnibus operators, shop owners in some high-density suburbs, vegetable vendors, tuckshops to retail shops in the central business district owned mostly by foreigners.
Since last Saturday, this writer has had problems accessing goods and services worth $100 made up of 10 cent coins as some retailers did not want to handle the smaller denomination coins.
Initially, service providers were sceptical about the legality of the old coins. Afterwards, they seemed overwhelmed with the huge amounts of coins they had to deal with for each transaction.
Shop assistants in one shop in Mufakose last Sunday said that they were no longer accepting coins arguing that it was cumbersome to count the money and balance their books at the close of business.
Commodities such as cooking oil, mealie-meal and soap could only be bought with notes while on Tuesday some commuter omnibus conductors were saying they had been instructed by their bosses not to accept coins.
It is surprising that there are sometimes police details on board the buses when the coins are rejected but they do not enforce the law and protect the citizenry as they are supposed to do.
Worryingly, the re-introduction of the old coins saw sharp increases in prices with the cost of goods in some cases doubling, trebling or even quadrupling when one was transacting in coins.
There are no economic fundamentals at work here: it is pure greed, plain and simple.
The Chronicle newspaper reported that the re-introduction of old coins caused a lot of confusion among residents of Tsholotsho who thought that the coins would be used in exchange for the new currency.
The knee-jerk reaction to coins is difficult to understand. Some people argue that the central bank did not adequately prepare the people before introducing such a radical system and a longer public education campaign was needed.
Others, on other hand say a longer campaign would have pre-empted the changes and defeated the purpose of the strategy.
Price hikes
Dr Gono told the nation that the people had to realise that the country was "in a practically binding state of socio-economic emergency" and there was need for a "universal moratorium on all incomes and prices for a minimum period of six months".
He said the country required nothing short of a total change of approach and renewed commitment by all stakeholders to "arrest the speculative bubble through the moratorium route".
However, contrary to the letter and spirit of this statement, consumers have instead seen a sharp price increase in goods and services across the board, and basics are increasingly getting out of the reach of ordinary folk.
In less than a week commuter fares have jumped from from $10 to $20. Products like bread that had disappeared from the market have suddenly reappeared but selling at exorbitant prices of between $25 and $30 on the street.
Could the "coins craze"' have sparked these astronomical increases?
Cash shortages
Since the central bank increased cash withdrawal limits some financial institutions have been failing to cope with demand resulting in long queues in banking halls.
Many account holders are wondering why this has become a perennial problem each time there are changes in the monetary policy.
People interviewed by The Herald expressed anger and frustration and most of them pointed out that they were now spending more money every day coming to the bank only to go back home empty-handed.
Others said that they wanted to travel during the forthcoming Heroes and Defence Forces holidays, while others with children at boarding were worried that their offspring would be stranded.
The fact is that people were now spending more time in banking queues than in productive activities and this has a negative impact on our economic turnaround efforts.
Others have suggested that the entire financial sector should revisit how it approaches its dealings with public because these shortages can be anticipated.
People are starting to wonder why periodical statements from the governor trigger such reactions in the financial services sector.
And an issue that still raises eyebrows is how a newly released banknote finds its way onto the black market and into neighbouring countries when the transacting public cannot withdraw from the banks.
One cross-border shopper who was in Zambia at the weekend claimed that she had seen wads of the new notes with traders in Kafue.
She also claimed that this was the same in Mozambique, South Africa and Botswana.
Does this mean cash barons are still in business?
The dollarisation of the economy
The economic situation has led to a partial dollarisation of the economy with many people trading in US dollars or South African rands.
Analysts argue that despite the many perceived advantages in dollarisation, it comes with problems that cannot be ignored.
Zimbabwe probably has one of the largest informal reserves of foreign currency in the region.
As such, the Zimbabwe dollar has become the most sought after currency locally since it is being widely used to trade on the parallel market.
Due to the hyperinflationary environment, very little cash is going through the formal banking system, contributing in no small measure to the current cash shortages.
Some people argue that businesses that are rejecting coins are doing so because they know that they cannot use coins when dealing in foreign currency on the parallel market, for this would mean the dealers moving around with bags of coins.
Two Herald readers have also questioned why the $500 was introduced when the RBZ has pegged the withdrawal limit to $200. They ask, how it will come into circulation, arguing also that this will fuel inflation.
Since the onset of the economic challenges, the RBZ has done a lot to restore stability in the economy.
However, there are many elements working against their commendable efforts. Endemic corruption is one of the biggest stumbling blocks.
People are "spinning" money at astonishing levels and the economy has moved to the informal realm and this makes it difficult for institutions like the NIPC to do their jobs properly and protect honest, hardworking Zimbabweans from speculators.
When the NIPC has a roundtable with the Zimbabwe National Chamber of Commerce and the Confederation of Zimbabwe Industries and other formal organisations, who represents entrepreneurs in the informal sector who are now in the majority, and whose goods and services are also used by the majority?
How does the State ensure that the revalued coins are not rendered worthless by the activities of unregulated individuals who are dollarising the economy?
The political climate
The major argument among some observers is that the introduction of the new currency will not in itself result in the stabilisation of the key macro-economic fundamentals until a political settlement materialises from the South African-brokered talks between Zimbabwe's main parties.
Things like sanctions will eventually take their toll on the new currency and it is hoped that a political settlement will also see an end to the economic embargo that is asphyxiating Zimbabwe.
And ultimately, it is hoped that a positive outcome in the talks will give the authorities more time and resources to effectively deal with the scoundrels who defy the law through their speculative activities and make it hard for honest folk to lead a decent life.
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