I have to confess, I am not a fan of the International Monetary Fund (IMF) and the World Bank. It’s hard to be a fan as a Zimbabwean, I guess. However, they do hold sway over world proceedings and so we have to listen to what they have to say.
Right now Zimbabwe is the talk of town in the global village because of its gold-backed digital tokens that went on sale on Monday. So, some decided to ask the IMF what they thought about the development and this is what their spokesperson had to say,
A careful assessment should be conducted to ensure the benefits from this measure outweigh the costs and potential risks including, for instance, macroeconomic and financial stability risks, legal and operational risks, governance risks, cost of forgone FX reserves
I understand that there needed to be a careful assessment of the move and if I’m being honest, I don’t think the Zim government did that. I think they focused on what they hoped the tokens would achieve and ignored the rest.
That said, I don’t understand the risks that the IMF is talking about. They would have to expagorate. The cost of forgone forex reserves is the easiest to grasp with. Those reserves calm investors down as they can be used to influence monetary policy and so represent Zimbabwe’s ability to deal with shocks to the economy.
I would argue though that we are past the point of forex reserves calming international investors when it comes to Zimbabwe. Forex reserves signal that a country won’t default on its liabilities.
Well, Zimbabwe defaulted a long time ago and got cut off by the IMF and the World Bank. All to say, I understand why the need to hold massive foreign reserves would not be high up on Zimbabwe’s agenda. Hence why the cost of forgone FX reserves was ignored.
Conventional methods
Anyway, the IMF then made some more common-sense comments. They implored the Zimbabwe govt to use conventional means to address the country’s economic challenges. A gold-backed digital token really is something, we’re breaking new ground here and cementing our place in economics textbooks for decades to come.
Instead of resorting to the fancy, the IMF is saying there are conventional means to address some of our problems. They mentioned maintaining a tight monetary-policy stance and accelerating the liberalisation of the foreign-currency market by removing restrictions on the exchange rate at which banks, authorized dealers, and businesses transact.
Could it be argued though that Zimbabwe does not have conventional problems and so conventional means cannot be used to right the ship? I don’t know. Anyway…
Zimbabwe has been maintaining a somewhat tight monetary policy stance, we talked about some of those measures here: RBZ to tighten money supply. What does that mean and how are they trying to achieve it?
I guess there is always room to tighten it further. However, when it comes to the second point on liberalising the forex market, the Zimbabwe govt is not interested in the least bit. They want to control the forex exchange market and won’t allow the official exchange rate to deteriorate any further.
Of course, this is the source of most of our economic problems in this country. We’d rather have an embarrassing official exchange rate than hide our heads in the sand. The govt begs to disagree.
It is what it is
Listen, your head could explode from all this. If you want to get in on the gold token action, we talked about how you can go about that here: Digital gold tokens – here’s how you go about purchasing. Not all banks are ready.
We tried buying from one of the banks that said they were ready – FBC – and it turned out they were not. Said they had not received confirmation from Head Office that they could sell the tokens. They will call us back when they are ready. So, it’s pretty much chaos out there. We will update you when we break through.
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What’s your take?