Finance Minister, Mthuli Ncube has given us another reason to feel unsettled by saying that Zimbabwe will have a “new, fully-fledged currency” in 12 month’s time. He said this during an interview with Bloomberg in which he was talking about how he plans to stabilise the economy by introducing a reference rate to guide the country’s monetary policy. Here’s the Bloomberg report:
Zimbabwe will “soon” introduce a central bank reference rate as part of measures the southern African nation’s government wants to use to prop up the collapsing economy, its finance minister said.
Having a reference rate will help the country manage monetary policy, Mthuli Ncube said in an interview Thursday on Bloomberg Television. The nation also plans to introduce a new, fully fledged currency in the next 12 months and to close the gap between the rate for dollars in the official and parallel markets using RTGS dollars, which the government introduced in February, he said.
I admit that I (and many people I guess) totally missed it when I concluded that the devaluation of bond notes/coins/RTGS effectively made it/them Zim’s new currency. In February, the RBZ made a daring move of abandoning the 1:1 pegging of US Dollars and bond notes/coins/RTGS. The central bank not only devalued the bond notes/coins/RTGS but it also redenominated them to RTGS dollars. Judging by this, I thought it made the RTGS dollars the de facto currency since people can now trade them with other currencies at market-determined exchange rates (just like normal currencies do) but no it’s not Zim’s new official currency as Professor Ncube pointed out.
The probems of a new, fully-fledged currency
When this conversation of having our own “new, fully-fledged currency” start’s, the question of whether or not Zim has (enough) reserves to back a new currency is usually raised. Even Former finance minister, Tendai Biti questioned the sanity of RBZ to introduce a new currency when it doesn’t have any reserves to back it.
Even if we somehow have the reserves, there’s also a question of what the will be done with at least 9 billion worth of electronic money (RTGS balances) that’s in circulation. Will the government just demonetise the electronic money or it will convert it into the new Zim currency? If it demonetises the electronic money, there will be in a national mourning as people’s saving will vanish and if it converts the electronic money into Zim currency there is a risk that it will probably cause monetary inflation. Parish the speculation, let’s wait for the October Monetary Policy Statement to see what the RBZ has in store for us.