The speed at which the Zimbabwean financial authorities are trying to re-jig the Zimbabwean dollar into the economic pitch without giving themselves enough time to scroll down the pages of their economic conscience is not only an act of economic genocide, but also a classic display of what finance specialists call voodoo economics. After carrying out a series of economic post-mortems on the logic of recycling the Zimdollar code-named bond note into our dependent and not independent economy, I was left curious on whether the authorities would still have the guts to continue issuing out the bond notes given the devastating effects that the simple announcement of introducing the bond note has had on the Zimbabwean economic landscape.
BY ABNEL TAYLO RUKARA,OUR READER
Surprisingly, I zipped up my curiosity when I heard the monetary authorities reiterating that bond notes were warming up to substitute the already scarce American dollar. Yes, from a real economics perspective, the bond note will simply substitute the American dollar from the market in what economists call Gresham’s Law, whereby, abundant and worthless money drives out scarce and highly-valued currency from the market. Figuratively, this is a situation when lemons drive oranges out of the market.
Perhaps our monetary authorities are of the view that the introduction of the bond note will ease the prevailing liquidity crunch across the financial divide, but the outcome of the move will present a hodgepodge of economic trauma worse than that of the year 2008. The fact that our agro-based economy imports almost everything from maize to used clothes shows our local industries are performing to the nearest none. The fact that the government is trying to use the controversial Statutory Instrument 164 to ban the importation of a wide array of commodities from abroad is a true signal that our local products are far less competitive both locally and abroad in all aspects from price down to quality. With that reality, it means that any attempt to issue out the Zimdollar or Zim bond, as they like it to be pronounced, will suffer a premature miscarriage mainly due to demand-pull inflation. Thus, there will be high demand for foreign currency and to ease the demand, forex dealers will be forced by the market forces of supply and demand to inflate the exchange rate above normal. This will then force the prices of commodities to go up. Furthermore, the government will then be forced to increase the salaries of civil servants, so that they live at par with the economic demands. In this situation, the monetary authorities will be locked within the two horns of a dilemma to either break through the thin fabric of the $200 million Afreximbank forex back-up support, to print more notes so as to support the civil servants’ salaries, which are claimed to be consuming more than 80% of our fiscal budget, or to call back the retired devil of price controls, which may ground businesses to a halt, as what happened in 2008.
So the genealogy of this mode of voodoo economics is a direct product of the tragedy of gigantic proportions guided under assumption that by periodically re-jigging the Zimbabwean dollar into the economy, without the support of a viable local industry, the economy will grow. Surely our $10 billion economy has no appetite to digest any introduction of local currency and it will be forced to vomit if forced. In fact, we should not be victims of the fallacy of composition, which says that because bond coins survived, then bond notes will also survive. Actually, it is high time that the nation did a post-mortem on why some dollarised economies, like Panama, are not rushing to introduce their bank notes, when they have actually used their coins for long.
One could wonder why the nation is parading a red carpet for the jamboree of voodoo economics in our ailing economy, which needs proactive rather than reactive response.
It should be submitted that finance is a delicate heart of any economic system be it command economy, free market economy or mixed economy, and it needs cautious protection by the ribs of policy consistency and investment promotion activities. Yes, there should be policy consistency in the sense that both the monetary and fiscal policies of last year claimed that the Zimdollar would not see the sun, but within of six months, it turned otherwise. Can the financial authorities please spare us from this unhygienic mode of voodoo economics?
