The move by President Emmerson Mnangagwa administration to currently re-introduce the local currency and abolish the use of multi-currency regime is a noble idea which must be commended.
Over the past years, Zimbabwe has been using multi-currencies as a means of trading, and this has been affecting its trading patterns. Most retailers in the country were pegging their prices based on a three-tier system, such that there would be prices based on bond notes, RTGS and the United States dollar (USD). The three tier pricing system has been causing a lot of confusion in the market. Some unscrupulous retailers were just charging exorbitant prices citing that they were pegging their prices of commodities basing on the prevailing USD to RTGS dollar exchange rate especially on the parallel market. This has not be going well with the consumers most of who earn their salaries in local currency. The multi-currency system was being abused by a lot of businesses who were profiteering at the expense of end users, who are the consumers.
Addressing Harare South residents during a national clean-up campaign early this month, President Mnangagwa hinted that the country would not develop when using currencies of other nations and pointed out that Government had already started the process of introducing the country’s own currency so as to do away with the fluctuating foreign currency rates.
The President reiterated the issue of having a local currency while he was in Mozambique where he was attending the Africa-US business summit last week.
As part of the economic reforms and the Transitional Stabilisation Programme (TSP) which are currently taking place, the introduction of a new local currency is welcomed by many economists who share the same thoughts with President Mnangagwa. Economist and businessman, Eddie Cross said that the introduction of the new currency would strengthen the Reserve Bank of Zimbabwe (RBZ) and the monetary policy and it would give the nation control over its money since foreign currency policies are determined in their home countries not in Zimbabwe. Cross was certain that Government had the right fundamentals in place to support the re-introduction of the local currency which included a fiscal surplus and balance of payment surplus.
Adopting a local currency comes with many benefits which among others include increased volumes in circulation. When the bond coins and notes were introduced in 2014 and 2016 respectively, their purpose was to complement the basket of foreign currencies and bring about convenience through availing small change. However, the bond notes were in short supply and this affected the circulation of the notes. The reintroduction of the new local currency is expected to ease the problem of cash shortages and wipe away all bank queues which have haunted Zimbabweans since 2015.
Local currency will also ensure increased support for small enterprise development. Most people earn a living through informal business operations such as carpentry, welding and farming. Rather than relying solely on a high interest commercial loans, entrepreneurs are able to procure at least part of the goods and services they need for start-ups simply by making a commitment to supplying the fruits of their labour to the community. If local currency is embraced, small businesses will not find it hard to trade within the local markets.
There is no doubt that if a local currency is in place, money stays local longer, reducing the need for externalisation. For instance, when one visits a country like South Africa (SA), he is forced to trade in that country using that country’s local currency, the SA Rand, making it very difficult for their money to be externalised. This is in contrast with using other country’s currencies such as the US dollar, which is bound to be externalised by unscrupulous business people. An increased money supply means increased purchasing power at the local level.
Reintroduction of the new currency is part of the economic reforms that Government is currently undertaking. Already, the International Monetary Fund (IMF) has acknowledged the commitment by President Mnangagwa’s administration to stabilise the country’s economy through such reforms.
In other countries such as Russia and China, their Presidents agreed to develop bilateral trade using their own local currencies, the Rouble and the Yuan respectively, avoiding the use of foreign currency. The major deal was reached following the talks between the presidents of the two countries, Vladimir Putin and Xi Jinping. The decision that was reached by the two presidents depicts that it is best for countries to have and trade with their own local currencies, rather than using foreign currency.
In a nutshell, the nation is encouraged to embrace the new currency. Local businesses should adjust their pricing systems in response to the reality of the new local currency regime which the Minister of Finance and Economic Development, Professor Mthuli Ncube announced this week. They should adopt the operations of market forces as they determine the real value of the Zimbabwean dollar.