THE chronic problem of Zimbabwe’s economy has its roots in the land reform activities that began more than 30 years ago.
The principle of ‘ethnic balance’ in land ownership was fair. The problem was in its implementation.
Macro farms operating on efficiencies of scale, being cultivated and harvested with mega machinery, suddenly got transformed into many inefficiently managed subsistence plots.
The bottom fell out of the economy, and Zimbabwe (formerly dubbed ‘the bread basket of the world’), suffered a mass exodus of its people, who were starving, many of which headed for South Africa.
Zimbabwe has seen decades of pain since, and multiple efforts have been made to recover the Zimbabwean dollar from implosion.
Revaluation didn’t work, and most of the time does not, as we have also seen with the Ghanaian Cedi.
It also tried operating with the USD as a local currency, which also didn’t work, as individuals simply sucked the USD out of circulation, and market activity was unable to function for lack of promissory notes to act as value representation in trades.
Zimbabwe then went through a process of trying gold coins, but these too faced difficulties, with the masses complaining the issuance didn’t reach them and were retained among the elites.
Now, the Reserve Bank of Zimbabwe (RBZ) is issuing a new instrument called ZiG aimed at stabilizing purchasing power of citizenry.
“These are financial instruments designed to give an investment alternative to gold coins and other asset classes,” Clive Mphambela, the chief director of communications in the Ministry of Finance and Economic Development, told Source.
Godfrey Kanyenze, economist and founder of the Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ), lauded the introduction of the digital currency but said it would not solve Zimbabwe’s currency woes.
“While the idea of launching digital coins is noble as it mops up excess liquidity and stabilises the local unit, this is no different from the gold coins introduced by the central bank last year that have failed to stem the money supply growth,” Kanyenze said.
He said Zimbabwe was currently grappling with a “confidence and trust deficit emanating from legacy issues such as when the country experienced hyperinflation that ended in 2009 where people lost their money and savings.”
Former Finance Minister Tendai Biti attacked the new digital currency, saying the central bank should instead establish market stability by floating the Zimbabwe dollar.
Multi-talented entrepreneur and educator, Prof. Ndubuisi Ekekwe, owner of both Tekedia Institute and Tekedia Capital, has frequently argued against floating ‘troubled’ internationally restricted currencies.
In the case of the Naira, he wrote: You cannot float Naira when you cannot fix the supply side of the US dollars in Nigeria. Across all indicators, the demand and supply imbalance of US dollars in Nigeria is the root cause of why Naira is struggling. Another component is the overdue forward payments of $6.8 billion. The challenge now is how to fix this Naira’
My own take is that the real value of a nation is not in how much of a precious commodity it can lock away, but in the collective productivity of its people. This collective productivity is formulized into a statistical annual standard, called GDP (Gross Domestic Product).
This was the reasoning behind why ‘so-called’ economically advanced nations, such as the US, ditched the gold standard.
Pegging currency issuance to GDP makes sense, but the ‘artificial’ printing of money (called quantitative easing) in excess of the GDP, and exasperating debt is what causes problems, not ditching the gold standard.
These are the problems the US is facing now, and I would probably add to that, an over-liberal regulatory approach to fractional reserve banking (the agreement between state and commercial retail banks on the permission to loan more money to customers than they actually have) which heats up the economy and causes interest rates to rise.
As of writing the US debt clock showed a total figure just short of $ 33.5 Trillion and running at 123.88% of GDP.
Zimbabwe’s Tendai Biti further described the introduction of the gold-backed digital currency as ‘a psychopathic exercise in self-delusion’
Central bank governor John Mangudya said ZiG will cater for domestic transactions over its purpose.
He said the ZiG will be at the same rate as the physical gold coin and will be guided by the international gold price.
“Banks will maintain dedicated ZiG accounts and intermediate transactions in ZiG in the same way they intermediate transactions in local and foreign currency. The applicable intermediated money transfer tax will be half of the IMTT applicable to transactions in foreign currency and the relevant legal instrument to that effect will soon be published,” he said.
ZiG is a peer-to-peer (P2P) and peer-to-business (P2B) digital currency that can also be used as a store of value. It is backed by physical gold coins that are held in the RBZ’s vaults.
Mangudya said ZiG is intended to help stabilize the Zimbabwe dollar and promote financial inclusion.
It represents a significant development for Zimbabwe’s financial system and is the first time that a central bank in Africa has issued a gold-backed digital currency.
However, it won’t fix the country’s problem to raise GDP and alleviate poverty, which can only be achieved by cranking up production across sectors, and developing wealth.
In the long term also, in order to remove development constraints, Zimbabwe will need to move from pegging to a precious commodity it can lock away, to a collective productivity formulized into a statistical annual standard, as GDP, just as the ‘advanced’ nations did before.
The digital currency is merely an exchange medium, but issuance will probably need to shift to align with GDP. The ‘gold-backed’ status is unlikely to be able to support a growing economy long term.
ZiG went on sale yesterday (5 October) and can be purchased and sold through the RBZ’s mobile wallet application. It can also be used to make payments to merchants who accept ZiG.
Although the ZiG is a governmental digital issue, it doesn’t possess the spending monitoring and programmable capabilities feared of CBDCs – at least not yet!
Source NewZimbabwe
