Yesterday’s Monetary Policy Statement vindicated former Finance Minister, Tendai Biti who last week had disclosed that Zimbabwe was going to introduce a new currency. Indeed, Mr. Biti was right Zimbabwe has essentially introduced a new currency.
The redenomination of bond notes, coins, and RTGS balances to RTGS dollars technically (but not officially) means that Zimbabwe now has a new currency. Despite the Reserve Bank of Zimbabwe shying away from saying the RTGS dollars are a new currency, they are characteristically a new Zimbabwean currency as they are no longer tied to the value of the US Dollars and they can be formally exchanged with other currencies at a market-determined rate.
Therefore, abandoning the 1:1 pegging between RTGS Dollars and US dollars is the act that has proved that RTGS dollars are in themselves a stand-alone currency. The exchange rate between the RTGS dollars and the US Dollar will start at between 3-4 RTGS dollars/$1 US dollar.
When Mr. Biti made his claim, the Reserve Bank of Zimbabwe was quick to dismiss it by saying that Zimbabwe will “continue to use the multicurrency system”. Yes, we are still using the multicurrency system but Zim dollar has now been introduced into the multicurrency system. And apparently, with reference to Mr. Biti’s statements, this new currency (RTGS dollars) is “not backed by any reserves” or structural reforms which are “prerequisite to currency reforms”.