Politics
The Return of the Zimbabwean Dollar
After a deal to import hard currency from the US fell through, a report about the trial printing of new Zimbabwean dollars caused a stir. South Africa’s watchdog newspaper, Mail & Guardian, reported on April 11 that ‘impeccable sources’ (an unnamed banker and two top civil servants) confirmed to its journalists that Harare is contemplating a return for the local currency which was abandoned in early 2009.
Apparently, Fidelity Printers & Refiners, the largest security and commercial printing company in Zimbabwe, printed some Zim dollar notes near the end of last year, some valued as ‘high’ as 10 million Zim dollar. The motivation behind this move is the country’s shortage of hard currency. The multi-currency system is dependent on the inflow of cash from abroad, and the economy’s massive current account deficit translates into outflows depleting the local money supply.
Broad (M3) money supply was estimated by the central bank at 3.9 billion dollars during January; put differently, this equated to a low 275 dollars per capita. The Reserve Bank of Zimbabwe added the Australian dollar, Chinese yuan, Indian rupee, and Japanese yen to the local multi-currency system earlier this year in order to increase hard currency options.
Bloomberg reported on April 23 that three members of the ruling party’s decision-making body confirmed to it via telephone interviews that the ruling party’s top leadership is weighing the reintroduction of the national currency that was abandoned early in 2009. ZANU-PF’s politburo is trying to decide whether it will do more harm to their image by reintroducing the Zimbabwean dollar, and indicated that a majority of politburo members are currently against its reintroduction. Constrained liquidity was already a factor some 12 months ago when President Robert Mugabe’s party campaigned for the July 2013 elections with the promise of bringing back the sovereign currency.
Speculation about a return of the Zimbabwean dollar has been perennial over the past five years. However, news of last year’s test print, the impending (backdated) increase in civil servant remuneration, and debate about currency matters in the highest echelons of ZANU-PF policymaking, signal that rumors cannot be ignored this time. From a somewhat misguided perspective, the easiest way to fund higher state salaries, on the one hand, and reintroducing a sovereign currency into the multi-currency system, on the other hand, is to combine the two moves into one.
This will certainly not be popular amongst donor agencies, rural folk (who are experiencing the biggest liquidity constraints), and multilateral organizations. Indeed, it would be wise to involve the International Monetary Fund in any such currency developments lest the outcome is as horrid as the hyperinflation situation of 2007-08.
However, even if nothing tangible comes of these continued rumors they still cannot be ignored; consumers, investors and multilateral organizations will not like the debate. One of the by-products of the country’s constrained currency liquidity was low inflation readings during 2013 that turned into deflation early in 2014.
