Zim Dollar, Twin Deficits and The Rate
Queues, shortages, hyperinflation, and poor billionaires – these are just a few things that come to mind when citizens of Southern Africa’s former breadbasket see the words ‘Zim Dollar’. Few things incite more distressing feelings and unpleasant memories in the hearts and minds of Zimbabweans than the sight of their not-so-beloved local currency.
However, now we need our sovereign money if we wish to see economic prosperity in our country. Benjamin Franklin and his fellow dead presidents of the United States of America saved us from almost certain oblivion in 2009 but as evidenced by the current state of our economy – this is no longer sustainable. We need the Zimbabwean Dollar and here’s why:
Let us begin some with non-economic factors. A national currency is a form of national pride. It promotes patriotism as we feel it is our national responsibility to safeguard the value of our money. Local banknotes can serve as a method of promoting tourism as many nations decorate their money with sights to see in the nation. For example, Zimbabwe Dollars have featured the Kariba Dam Wall and more commonly, the Balancing Rocks located in Epworth and Matopos.
A national currency and its value as an important indicator of how well the economy is doing. Zimbabwe is a net importer (we spend more money on imports than we earn from exports). Local industries will collapse, and jobs will be lost if this trend continues. The adoption of a Zimbabwean Dollar will allow a ‘self-correction’ mechanism to come into effect. This is when the currency of a country that is a net importer begins to depreciate in value (i.e. from 1:2.5 to 1:3.5 etc.) because a lot of people will be selling Zim dollars to buy forex. This depreciation will make Zimbabwean-made goods and holidays in Zimbabwe cheaper for foreigners and thus increase inflows of foreign currency into Zimbabwe. This increase in exports and a reduction in imports will grow our industries and jobs will be created. In contrast, a US Dollar economy will not achieve this because the US dollar does not appreciate and depreciate according to our trade balance. We are unlikely to ever become a net exporter if we continue to use the US dollar as we are just far too expensive for foreigners.
Minister of Finance Professor Mthuli Ncube of often heard emphasizing the need to arrest our ‘twin deficits’ – by this, he means a balance of trade deficit and a fiscal deficit. A balance of trade arises from being a net importer (as explained earlier) and a fiscal deficit arises from the government spending more money than it collects in taxes. Following the adoption of the RTGS dollar, the trade deficit has almost been nearly eliminated as it declined by 90% in February. This would not have happened under the 1:1 system. Half the job has been done. Now if the government continues to record budget surpluses, the interbank and black-market foreign currency rates should stabilize soon – possibly by next month.
Did you know that most local products in Zimbabwe are now technically cheaper than they were before the bond note was introduced? Let’s take $1 dollar of airtime for example; you used to pay US$1 for a 250MB daily data bundle on Econet. Now you pay RTGS$1 (or in some cases RTGS$1.50) for the same amount and that is less than US$0.40 at the interbank rate. This is an example of how we haven’t seen a change in costs of production in real terms – but the erosion of incomes in real terms. Goods have not become more expensive; we have just become poorer.
Let us begin some with non-economic factors. A national currency is a form of national pride. It promotes patriotism as we feel it is our national responsibility to safeguard the value of our money. Local banknotes can serve as a method of promoting tourism as many nations decorate their money with sights to see in the nation. For example, Zimbabwe Dollars have featured the Kariba Dam Wall and more commonly, the Balancing Rocks located in Epworth and Matopos.
A national currency and its value as an important indicator of how well the economy is doing. Zimbabwe is a net importer (we spend more money on imports than we earn from exports). Local industries will collapse, and jobs will be lost if this trend continues. The adoption of a Zimbabwean Dollar will allow a ‘self-correction’ mechanism to come into effect. This is when the currency of a country that is a net importer begins to depreciate in value (i.e. from 1:2.5 to 1:3.5 etc.) because a lot of people will be selling Zim dollars to buy forex. This depreciation will make Zimbabwean-made goods and holidays in Zimbabwe cheaper for foreigners and thus increase inflows of foreign currency into Zimbabwe. This increase in exports and a reduction in imports will grow our industries and jobs will be created. In contrast, a US Dollar economy will not achieve this because the US dollar does not appreciate and depreciate according to our trade balance. We are unlikely to ever become a net exporter if we continue to use the US dollar as we are just far too expensive for foreigners.
Minister of Finance Professor Mthuli Ncube of often heard emphasizing the need to arrest our ‘twin deficits’ – by this, he means a balance of trade deficit and a fiscal deficit. A balance of trade arises from being a net importer (as explained earlier) and a fiscal deficit arises from the government spending more money than it collects in taxes. Following the adoption of the RTGS dollar, the trade deficit has almost been nearly eliminated as it declined by 90% in February. This would not have happened under the 1:1 system. Half the job has been done. Now if the government continues to record budget surpluses, the interbank and black-market foreign currency rates should stabilize soon – possibly by next month.
Did you know that most local products in Zimbabwe are now technically cheaper than they were before the bond note was introduced? Let’s take $1 dollar of airtime for example; you used to pay US$1 for a 250MB daily data bundle on Econet. Now you pay RTGS$1 (or in some cases RTGS$1.50) for the same amount and that is less than US$0.40 at the interbank rate. This is an example of how we haven’t seen a change in costs of production in real terms – but the erosion of incomes in real terms. Goods have not become more expensive; we have just become poorer.
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