Utter the name ‘RBZ’ in front of most adult Zimbabweans and you’ll hear a ‘tsk tsk’ in return. For all the good that the Zimbabwean central bank has ever done, its failures are just so large as to eclipse it all.
My friend, consider this – some teenagers have gone through multiple hyperinflation periods in their lifetime in this country. I do not think trust in the institution could be any lower.
The same applies to the government as a whole. Zimbabwe is not a bastion of excellence and for all the sanctions talk we can have, the government will have to take a significant piece of the blame pie. My whole life we have talked about a bloated civil servant wage bill and yet civil servants are underpaid. It’s ridiculous.
Then come the state-owned enterprises. While there are some like Telone that are not complete failures, they would probably do much better without government interventions. Let’s not even talk about Air Zimbabwe and ZESA, we all know how successful they have been.
The above is depressing but let’s take comfort in knowing we are not alone on this boat. So many countries out there are unhappy with their governments, central banks and state-owned enterprises.
Some dude in Argentina thought to himself, what if I got into power and did something about it? What if I got rid of the central bank and privatised parastatals?
The crazy Argentine experiment
Javier Milei, Argentina’s soon-to-be president, is shaking things up with some wild ideas. One of his craziest plans is to say adios to the Central Bank of Argentina (BCRA).
Milei thinks the BCRA is like a toothless lion – not doing its job to control inflation and keep the economy steady. You could be forgiven for thinking he’s talking about the RBZ here.
Milei wants to try a new game plan: ditch the central bank and bring in a currency board that ties the Argentine peso to the US dollar. This move would stop the central bank from setting interest rates and printing money.
For context: as revealed by the Mid-Term Monetary Policy Statement, the bank policy rate (commonly just called interest rate on the streets) is 150% in Zimbabwe whilst it’s 133% in Argentina. The USA sits between 5.25 and 5.5%.
Can we say the RBZ and Argentina’s central bank are doing a great job in controlling inflation? Milei says, ‘Why should the central bank still exist when it has shown that it is incompetent?’
This is a crazy idea and many economists, even those highly critical of the RBZ would not suggest that we do away with a central bank altogether. However, I guess they will be tuning in to see what happens in Argentina if Milei follows through with his campaign promises of doing away with the central bank.
There’s more. Milei has some other interesting ideas up his sleeve:
- Austerity for Prosperity: Milei wants to trim the fat from government spending by 50% over the next four years. He thinks the government is too big and slow, and these cuts will slim down the budget deficit and help the economy recover.
- MaObama: Milei is talking about going all-in with the US dollar and ditching the local currency. Dude, this guy just keeps sounding Zimbabwean. We have flirted with this idea in Zimbabwe for years but the govt is adamant it would make things worse. Milei thinks this would stop the risk of money losing its value and make investors cheer.
- Govt can’t run no business: Milei also wants to put the ‘For Sale’ sign on some government-owned companies, like the national energy giant YPF. This is eerie, how many people have called for ZESA to be privatised in Zimbabwe? He figures selling them off will make things more efficient and get investors excited.
What’s the Big Picture?
We can look at Argentina as our very own lab rat. We can grab our popcorn and see how it all plays out and then factor in the differences in our economies and assess whether we could pull it off here.
One thing we kind of have experience with is the fixed exchange rate that Milei is proposing. That doesn’t work out if our experience is anything to go by but who knows, it might work out over there. Milei thinks the perks of a free-market approach to monetary policy would outweigh the risks.
Milei’s other proposed policy changes, such as drastic cuts to government spending and full dollarisation, could also have a significant impact on the economy. These changes could lead to job losses and social unrest in the short term, but Milei’s supporters believe that they would be necessary to put the economy on a sustainable path to growth in the long term.
Say what you want about Mthuli Ncube but at some point, he successfully managed to drastically cut government spending in the ‘austerity for posterity’ days. Unfortunately, we felt the austerity bit but are still waiting for the prosperity bit. So, good luck to Milei on that one. On paper, it should work but maybe Zimbabwe is just cursed.
We abolished a local currency at some point and many Zimbos swear we had it good during that period. Yes, there was deflation and the economy was not growing but after experiencing hyperinflation, the masses did not mind.
The debate rages on in Zimbabwe on whether we should fully dollarise or get rid of the US dollar. Let’s see what happens in Argentina and maybe it can help us make a good decision.
It’s good that we get to do this because we got to see how making Bitcoin legal tender turned out in El Salvador – not great. Showed we need not even consider the crazy idea.
Keep your eyes on the Argentine show. Milei’s plans are still just sketches on paper. Whether he can turn them into action and what it means for Argentina’s economy is a story yet to unfold.