Zimbabwean central bank authorities have a traceable record of overnight monetary policy changes. Memories of the former Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono era of monetary policy hip-hop are still fresh in the mind. Having failed to extinguish the currency crisis, the monetary authorities joined the political bandwagon of peddling the sanctions mantra as the primary driver of the Zimbabwean economic demise.
Specific examples of the overnight changes were the frequent currency devaluations, printing of new notes and abrupt variations of bank regulatory rules. Overnight, one would wake up from having an account with billions or trillions of dollars to having a reduced figure whose zeros would have been truncated. The chant "from zero to hero" deserves a special mention.
The currency modifications publicity stance were perfected such that in the interim period, the unsuspecting public would be confident that the monetary authorities had finally found the winning formula. Unfortunately, the majority of Gono's monetary experiments suffocated the economy.
Having embarked on various trial-and-error monetary economics, Zimbabwe finally dumped its local currency. The multi-currency regime brought a new lease of life. In a few months' time from the official introduction of the new monetary measures, Zimbabweans could slowly see the "financial stability" light at the end of a long-term financial struggle.
The economy was engulfed in a new form of public enthusiasm. Those in formal employment began to be motivated by the tangible value their incomes generated and the concomitant robust purchasing power. The savers started to recognise the potential future benefits of their sacrifices. Pensioners could afford to smile and maintain a decent livelihood. In short, those who laboured realised bountiful harvests for their sweat.
Emanating from an entrepreneurial standpoint, business confidence was revamped. Aggregate demand boomed. Financial institutions could visualise greater benefits of extending credit. Depending on financial objectives, individuals and corporates borrowed for production and consumptive purposes. Construction projects were resuscitated and many successful projects erected and completed. A lot of positive developments were noticeable.
The positive economic trajectory can largely be traced to the currency certainty regarding the multi-currency system. The longevity of the relatively stable monetary environment was questioned, particularly for those who were used to the conspicuous spending and corrupt monetary systems of the former RBZ governor's tenure. One can easily notice that, at a time when members of the general public were celebrating the new wave of economic certainty and predictability; one economic stakeholder's room to manoeuvre was constrained.
Particularly, the multi-currency system basically meant one major change for the spendthrift Robert Mugabe regime. No room for money printing ever existed. Monetary shenanigans and gimmicks were brought to a halt. A government which had over the years sustained its unrestrained spending through excessive borrowing was remedied by the "we eat what we kill" stance of Tendai Biti, the Government of National Unity (GNU) finance minister.
Regardless of having finally found the road to an economic paradigm shift, the ruling government soon after the expiration of the GNU established a new monetary experiment -- the bond note. The previous uncouth borrowing re-emerged. The overreliance on Treasury Bill issuances as a measure of financing most unbudgeted and consumptive government expenditures resurfaced. The RBZ's overdraft facility was abused. The resultant crowding out of private investment was inescapable. Severe unpalatable factors soon gathered momentum.
Primarily, the discernible sign that the economic chauffeurs were facing severe headwinds manifested when the bond note experiment was enforced on the masses. Under the guise of solving the divisibility concern of the US dollar, the Zimbabwean monetary authorities introduced the surrogate bond note currency. In order to rationalise the future print-outs the export incentive justification became the RBZ governor's public discourse.
Though the current RBZ governor, John Mangudya, is so methodical is his currency experiments, some significant similarities are observable. The utilisation of publicity campaigns (e.g. the bond notes billboards and various advertisements on public media) is an old stratagem to hoodwink the unsuspecting public. In a legendary manner, the governor placed a bet on his job. Popular public declarations such as "if the bond note fails, I will resign", were a psychological appeal to evangelise to the masses that bond notes would never fail.
Mangudya's February 20 2019 monetary policy statement (MPS), however, publicly admits that the bond notes were subjected to a speculative attack. As expected, he had an easy scapegoat. In his view, the bond notes did not fail, instead they achieved their export incentive objective. The same MPS statement, however, makes a public declaration that "the export incentive scheme has been eroded by the forex premiums-induced inflation". The policy inconsistencies are earth-shattering.
At some point however, the monetary authorities had made a public declaration that the multi-currency system was a going concern and likely to exist till economic fundamentals have been re-aligned. Specifically, the July 2014 monetary policy statement running under the theme of "Back to basics: Setting the Tone for Zimbabwe's Economic Recovery", unequivocally stated that "... the local currency would only be resuscitated when the country's foreign exchange reserves and domestic production levels are significant enough to sustain its rebirth ... "
Basing on this public commitment, most analysts and experts expected government to fully commit to this public declaration. Sadly, however, it is the same monetary policy statement which proposed the introduction of the surrogate bond note. The concomitant public criticism against the proposed monetary measures was ignored and labelled as "political bickering" and "Western machinations to effect regime change".
Instead the public was deluded to accept the surrogate currency. In the interim period, there was public resistance and a number of individuals and corporates were not willing to accept the bond. However, the publicity stance and the regulatory promulgations which made it obligatory for the transacting public to accept the bond notes were a weapon which was used to whip those who resisted the monetary variations. In no time, the bond was the de facto currency and the most widely circulated currency.
As anticipated, the unavoidable happened. Gresham's Law took effect. Bad money chased good money. A buoyant foreign currency parallel market emerged. Its ravaging effects are even visible in present-day Zimbabwe. The black market chief casualty was the speculative attack on the bond notes, RTGS balances and mobile money. Outstandingly, the October 2018 price erraticism cannot be ignored in the current discourse.
Having noticed the deepening of the foreign currency crisis, on October 1 2018; the Zimbabwean government shockingly separated the once joined Nostro and RTGS-denominated accounts. The floodgates of price distortions were opened. The market reaction to this policy shift was dramatic. Prices ran amok. The bond note lost its value. The multi-pricing system deepened. In a single shop a product would have a US dollar price, bond note price, mobile money price, RTGS price and the instant swipe transaction price.
Though in the midst of the so-called "New Dispensation" and "Austerity for Prosperity" phase, Zimbabweans had a bleak Christmas holiday. Approximately a year after the military-assisted government transition, the public expectation was that better economic fortunes would be their portion. Unfortunately, the parallel market activity bourgeoned and most incomes lost their values. For instance; salaried employees, pensioners, savers, corporates' trading profits, rental incomes, etc, were all faced with reduced purchasing power of their bond note-denominated incomes.
The proof that indeed the bond note had lost its assumed value came through the fuel price increase by the highest office in the land. Having a vivid memory of the after-effects of the October 1 2018 price erraticism, the fiscal authorities introduced an incentive scheme. The tax incentive was just a technicality to justify the price increase. As usual, the carrot-and-stick approach failed. Price increases remained unabated, though with restricted momentum.
As usual, towards 2018 year-end, monetary and fiscal authorities were in denial that prices were running amok. They however ate humble pie in 2019, when the MPS statement heralded the existence of "an inflationary environment", "a multi-tier pricing system", and the hazardous parallel market. Additionally, the February 2019 MPS openly admits the economic challenges of having "... speculative pricing, loss of government revenue, valuation and accounting difficulties, asset-liability mismatches and negative investor confidence".
These monetary developments triggered the introduction of the RTGS dollar into the multi-currency system. A landmark announcement on February 20 2019 gave birth to a new monetary dimension. Though at introduction the monetary authorities were repudiating the fact that the RTGS dollar was a new currency, the fiscal authorities could not maintain the monetary propaganda.
Commenting on the new monetary measures which liberalised the foreign currency market and the removal of the US dollar and bond note 1:1 parity peg, the Ministry of Finance openly admits that the RTGS dollar is a new currency.
The publicly available Government's Progress On Policy Reforms of February 27 paragraph 35, unequivocally states that the currency liberalisation policy "... specifically introduces a new currency called the RTGS dollar, which includes electronic balances in banks and mobile platforms, bond notes and coins. The RTGS dollar, therefore, becomes a new reference currency for the purposes of pricing of goods and services and accounting".
Nonetheless, the July 2014 monetary statement has a clear message on paragraph 299 which states: "The current low levels of production within the economy concomitant with the high levels of imports are not conducive for the return of the local currency. It would therefore be economic suicide for Government to do so without foreign exchange reserves to anchor the local currency."
Reconciling the two positions forces one to ask the following questions: Have Zimbabwean production levels improved? Has our import bill reduced? Does Zimbabwe have enough foreign currency reserves to anchor the new currency? Having made such a public commitment, why did the monetary authorities commit economic suicide?
Zimbabwe has had a number of currency experiments. Given the current currency crisis, more surprises are inevitable. Analysts and experts might not necessarily agree as to whether the current policy direction will stabilise the currency dilemma. What is however clear in my opinion is that the bond note and/or its newly coined RTGS dollar is the de facto local currency.
Sadly, however, the country needs a rude awakening regarding domestic production to sustain the rebirth. From enjoying the title of "the bread basket of Africa", the economy is now a basket case. The erratic rainfall and poor weather conditions worsen our conundrum. Given that the economy is not producing enough grain to sustain its citizenry, the projected 2019 drought further cripples the already worse off international balance of payments position. Grain imports are unavoidable in our motherland, given the poor agricultural outputs and unfavourable weather patterns.
The MPS expectation that foreign currency premiums on the formal market and parallel market would converge was bogus. Our leadership seems to be ignoring the real economic problems. Customarily, Zimbabwean monetary policies have been reactive to symptoms and fare dismally in addressing the actual currency problems.
The country's production level is very low. Additionally, the economy is import reliant (with the majority of the imports being unavoidable e.g. medical drugs, fuel, plant and equipment and its associated spare parts, etc). The combination of poor production and having an import-reliant economy is unsustainable. As such, foreign currency scarcity is inescapable. The little generated is spent on imports, hence the concomitant economic problems.
The new wave of price increases is expected and very normal. The RTGS dollar is not backed by any tangible economic fundamentals. The foreign currency reserves have not improved. Production is still motionless. The current account balance is very much unfavourable. Therefore, one largely questions the assumed strength of the RTGS dollar.
In a nutshell, the Zimbabwean dollar now has a new face. The birth of the bond note and the metamorphosis into the RTGS dollar is openly the rebirth of the local currency. Unfortunately, the rebirth was not supported by tangible economic fundamentals. The simultaneous inflationary pressures will remain undiminished.
Masamha is an independent economic and financial analyst. He holds a Master's degree in Finance and Investments with the National University of Science and Technology and a Bachelor of Commerce Honours degree in Finance with the same institution. A chartered secretary by profession, the author is a graduate member of the Institute of Chartered Secretaries Association of Zimbabwe. He also holds an Executive Diploma in Business Leadership and is a graduate member of the Zimbabwe Institute of Management.