mbulelo smpofu
Simbarashe Bepete, Correspondent
THE constraint of speculative and albeit unjustifiable currency devaluation peculiarly rampant in the Zimbabwean economy has necessitated the introduction of a multicurrency system by the Government. Although the multicurrency system may not be ideal for the long-term growth prospects of the economy, it is expedient in the short term to reign in some antagonistic economic actors and forces.
The multicurrency system first came into being during the Government of National Unity era and ran its course unmitigated up until the introduction of the bond notes in 2016. While many have poured scorn on the introduction of the bond notes, it is my considered view that their introduction was a very subtle intervention to a breeding liquidity crisis.
The technical and official motivation for the introduction of the bond notes is a matter of public record. They were introduced as a measure to alleviate the shortage in small change that had come to plague the market. However, they presented a deeper underlying utility that was perhaps rightfully not unannounced. They were a first step towards addressing the then prevailing cash crunch in the market. As time went on, the bond note eventually morphed into the ZWL and then ultimately the ZWG.
The local currency unit has been widely disparaged in some sectors vis-à-vis the USD due to a mistaken belief that it is dispensable. This opinion is based on the experience in 2009 when the country experienced what seemed to be a smooth transition from the Zim dollar to the basket of foreign currencies dominated by the USD. What made this transition easy and even plausible was the fact that the economy had drastically shrunk during the period running up to 2009 resulting in a corresponding plummeting of aggregate demand.
Aggregate demand is an economic metric that is scarcely mentioned in our discourse. To put it plainly, aggregate demand refers to the sum total demand for goods and services in an economy. In this case, both satisfied and unsatisfied demand. Under normal circumstances, in an economy such as Zimbabwe with positive demographics, aggregate demand is constantly expanding. This expansion is supposed to be balanced out by positive money supply growth. Adopting currencies for which we do not have the capacity to print inevitably results in a conundrum where the inevitable rise in aggregate demand is not balanced out by money supply growth. This situation leads to a liquidity crunch that throttles economic activity.
The focus of this article is on a probably marginal negative money supply phenomena in the country that is resulting from the wear and tear of foreign bank notes. This in the overall grand scheme of the economy may not be very consequential but is of significance to the daily lives of individuals. Quite a few personal purchases are stalled because of these soiled notes. Though it may be hard to quantify the total amount of soiled notes in circulation, it is fair to say almost everyone in the transacting public has in one way or the other experienced the inconvenience of failing to transact because of a torn or warn out foreign bank note.
I believe the adage ‘‘keep your ears so close to the ground that you hear grasshoppers jump’’ is particularly instructive. A policy framework should be both micro and macro sensitive. Soiled bank notes are obviously a micro issue. They may not tip the scale at a national level but are certainly worrisome at an individual level. The purchasing power of a genuine bank note should not be based on its appearance if the better part of it is still visible. I have heard people refusing to take money because it is ‘‘too old’’ or it is slightly torn. This should not be. Even tacitly, we should be able to allow passage to these soiled notes for our collective convenience. What is in the common interest tends to be blurred by the individual interest.
I believe that it might be prudent for the monetary authorities to issue out a moratorium stating that soiled foreign currency notes remain legal tender. In any case, our banking system most likely has the capacity to arrange for the occasional repatriation of these notes and to socialise any associated costs. The economy needs all the liquidity it can get particularly as we edge on towards Vision 2030. I have confidence in our authorities, especially that they are inclined to resolve issues that are of concern to Zimbabweans.
