Key conditions for Zim$ return

zim currencyBusiness Reporter
ZANU-PF has dispelled fears that it will re-introduce the Zimbabwean dollar any time soon following its resounding victory in the just ended harmonised elections. The question that arises is when and how the country will re-introduce the Zimbabwean dollar. It is this apparent dilemma and uncertainty in the economy that has propelled the need for further enquiry on the issue.
The analysis aims at presenting the likely effects of the re-introduction of the national currency before conducive conditions are established in the country.

The period 1997-2008 was characterised by a turbulent macro-economic environment which presented a very complex situation for policymakers, individuals and institutional investors and even the ordinary Zimbabwean out of the business arena.

There were deep setbacks like ever increasing average prices, artificial shortages, unstable energy supplies, contraction in economic activity, increasing unemployment and also soaring local and international relations.

The major likely impact of re-introducing the national currency before the conducive conditions are set is the replay of this hyper- inflationary period as studies have shown that the introduction of the multi-currency economy only stabilised the economy but no significant changes have been made to strengthen the effectiveness of the local currency when it needs to be re-introduced.

The conditions include the increase in productive capacity in industrial sectors, the increase in the bank’s lending capacity, the improved debt position as well as the capital flows and current account positions.

These variables have a significant impact on the success of the national currency.
A study by a group of lecturers from the Bindura University showed that following the introduction of the multi-currency regime, month-on-month inflation trend sharply declined, as the country for the first time in more than a decade registered positive economic growth rate and average production activities rose from less than 10 percent in January 2009 to above 35 percent by end of December 2009.

Economic agents argue that, the current system has brought sanity, stability and affordability into the economy as a                          whole.
According to The Economist (2000), dollarisation should not be considered a blow to national pride but rather, a logical extension of the principles underlying the convertibility law.

The Economist (2000) further highlighted that the exit strategies for official dollarisation are rather rare.
The population is not ready and there is need to for the agents to first have confidence in the economic conditions for them to accept the currency.

Conditions necessary for the re-introduction of Zimdollar:

  •  Bank reforms these should emphasise the issues of corporate governance and compliance. In addition, this also includes putting in place a Reserve Bank governance structure that ensures effective oversight and accountability.
  • Boosting economic productivity. Implementation of policies that will promote an enabling environment for business growth and development.
  • Improving the export base. Improving the export levels would improve the current account position and would also strengthen the income base for the nation.
  • Building confidence there is need to promote policies that promote credibility, economic agents are the players in the market that is the households and business and they need to first have confidence in the policies being implemented for them to react in a positive way.

The current multi-currency system should be maintained until the economy has strengthened. Some economists are of the view that monetary authorities and heads of Government re-introduce the Zimbabwe dollar when there is a track record of sound fiscal policy implementation.

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