Why Mthuli Ncube's new currency is likely to be doomed

Why Mthuli Ncube's new currency is likely to be doomed
Published: 19 April 2019 (230 Views)
THE announcement by Finance minister Mthuli Ncube of his intention to introduce "a new, fully-fledged currency" in 12 months piqued the interest of the general public in Zimbabwe.

It comes soon after the RTGS$ has just been introduced. There are factors that must be properly aligned before a new currency is introduced.

Having introduced the RTGS$ on the back of shortages of the United States dollar (US$) to carry out both local and external transactions, the Reserve Bank of Zimbabwe (RBZ), the minister and the government he represents had hoped that doing away with the failed implausible assumed parity between bond notes and the US$ can bring back the US$ into official circulation.

While it is too short a period to judge the performance of the RTGS$, it has so far failed, with the parallel market thriving and enjoying higher public trust than the official exchange market.

This was not unexpected as it is basic economics that the strength and stability of the currency of a given economy is (on the face of it) is determined primarily by its exports, diminished imports, and a government proclivity to save rather than spend. All other things being equal, the more an economy exports and the less it imports, supported by an incumbent government to contain public expenditure, the stronger and more stable the incumbent currency is likely to be.

These fundamentals are assessed technically by various interlinked measures such as the value of exports compared to imports (so-called the current account), capital transactions between citizens of a country and those in other countries. The latter includes foreign investments, loans, banking and other forms of capital (so-called capital account), the current and capital accounts, together being referred as the balance of payments. The more the exports in the current account, the stronger the currency, while a deficit in the capital account indicates money moving out of the country.

Increased exports on the other hand simply mean increased productivity in the country - otherwise there would be nothing to export from the country. In turn, such increased productivity leads to increased capital formation.
There are other interlinked measures such as inflation rates (the general increase in price levels) and interest rates (the price of the currency/money) - all deriving from the productivity of a country or lack threof, one way or the other.

Now the productivity in question is very loosely the value of goods and/or services by a unit of capital per given accounting period, in a given economy. Capital includes machines, technologies used to produce the machines, financial capital, human capital, among other forms of capital.

Note here that human capital consists of healthy, knowledgeable, skilled and motivated people for the requisite productivity. The goods and services to be produced by this capital, as just defined, have to be quality competitive goods and services in order to sell as exports in the international markets for goods and services.

Now it is well-known that Zimbabwe has precious little of machines, technology and financial capital to produce such quality goods and services for export in any given accounting year. In consequence, there is very little productivity for export purposes in pensions and insurance services, in agriculture, energy, manufacturing and many other economic sectors.

In fact, the usable capital set up during the colonial times has been run down as the human capital available is unable to competently put it to use, and/or as it was (and is being) vandalised as greed prevailed or prevails over productivity and development. Apart from this capital deficiency, Zimbabwe's successive governments have to date shown very little commitment to contain its expenditure and to put in place governance policies to so contain expenditure. The government, for instance, openly runs a huge civil service which has dismally failed to provide vital public services such as clean water, health care, electricity, among other goods and services. Instead of engaging in quality, efficient production, civil servants are now notorious for engaging in corruption as government apparently turns a blind eye.

A case in point of the latter is the apparent blatant meddling with the Justice Smith commission of inquiry and with the inquiry report by Finance ministry officials to frustrate pensioner compensation.

There could not be any productivity in the pensions and insurance industries (and indeed other economic sectors) with such officials at the helm. Sadly, it does not look like the Finance minister is aware of this acute pensioner problem and similar such problems in the economy, their adverse impact on productivity and hindrance to exports. Does the Finance minister realise that corruption and low productivity militate against the introduction of a stable Zimbabwe currency? He needs to think carefully about this matter.

The well-decorated Finance minister is humbly reminded that a stable currency functions only when pensioner financial property rights are honoured without reservation, when financial mediation in the pensions, insurance and financial services sector generally works properly, and generally when the economic fundamentals are right.

Martin Tarusenga is general manager of the Zimbabwe Pensions & Insurance Rights Trust. - martin@zimpirt.com; +(263 24) 279 7020; Cell: +263 772 889 716. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent.

- the independent

 0

You May Like These Videos

Comments

There are no comments.

Latest stories

Soldier up for carjacking

by Staff reporter | 23 May 2019 | 49 Views

Five 'plotters' denied bail

by Staff reporter | 23 May 2019 | 38 Views

Mnangagwa says, 'Don't panic'

by Staff reporter | 23 May 2019 | 50 Views

New Zupco buses come to Bulawayo

by Staff reporter | 23 May 2019 | 40 Views

Kidnap & assault magistrate acquitted

by Staff reporter | 23 May 2019 | 38 Views

Sangoma takes pangolin fight to High Court

by Staff reporter | 23 May 2019 | 38 Views

Chamisa buckles under Bulawayo pressure

by Staff reporter | 23 May 2019 | 42 Views

Government to hire 1,600 health workers

by Staff reporter | 23 May 2019 | 44 Views

Mnangagwa's 'last way to life'

by Moses Tofa | 23 May 2019 | 43 Views

Court freezes car dealer's bank account

by Staff reporter | 23 May 2019 | 37 Views

Chasi guns for State-owned firms

by Staff reporter | 23 May 2019 | 23 Views

Ginimbi's passport temporarily released

by Staff reporter | 23 May 2019 | 38 Views

Headmen in soup for inviting tsikamutandas

by Staff reporter | 23 May 2019 | 47 Views

Zimbabwe's outlook not rosy, says Fitch

by Staff reporter | 23 May 2019 | 35 Views

Zimra dollarises border charges

by Staff reporter | 23 May 2019 | 42 Views

'Mnangagwa leadership hurting us'

by Staff reporter | 23 May 2019 | 37 Views

Zimbabwean prop join Sharks

by Staff reporter | 23 May 2019 | 37 Views

Mnangagwa's dialogue will not work, simple!

by Nqaba Matshazi | 23 May 2019 | 36 Views

Mohadi snubs Chief Ndiweni

by Staff reporter | 23 May 2019 | 33 Views

Zimbabwe Women's seven's side coach steps down

by Staff reporter | 22 May 2019 | 79 Views

Guard against uncontrolled fires

by Thomas Murisa. | 22 May 2019 | 72 Views

Lack of Political will has brought unnecessary calamity

by Tinashe Eric Muzamhindo | 22 May 2019 | 111 Views

Mnangagwa faces impeachment

by Mandla Ndlovu | 22 May 2019 | 185 Views

Perence Shiri dissolves CSC board

by Mandla Ndlovu | 22 May 2019 | 103 Views

Zimbabwe Army steps in

by Mandla Ndlovu | 22 May 2019 | 135 Views

Chamisa's spin doctor attacked

by Mandla Ndlovu | 22 May 2019 | 106 Views

Counseling offered for Game of Thrones fans

by Mandla Ndlovu | 22 May 2019 | 97 Views

Nelson Chamisa rallies Zimbabweans

by Mandla Ndlovu | 22 May 2019 | 116 Views

Best/ top data transfer apps from iPhone to Android

by Staff Writer | 22 May 2019 | 80 Views

Chamisa reaches half a million mark

by Staff reporter | 22 May 2019 | 95 Views

Parly to undertake public consultations on review of Water Act

by Community Water Alliance | 22 May 2019 | 98 Views

Mnangagwa addresses a divided ZANU PF caucus

by Mandla Ndlovu | 22 May 2019 | 104 Views

Binga airstrip set for $4m upgrade

by Staff reporter | 22 May 2019 | 89 Views

Mnangagwa joins African Peer Review Mechanism

by Staff reporter | 22 May 2019 | 62 Views

BREAKING: Cyril Ramaphosa elected President of South Africa

by Mandla Ndlovu | 22 May 2019 | 75 Views

Jacob Mudenda blocks fuel situation debate

by Staff reporter | 22 May 2019 | 88 Views

Chamisa's MDC still to appeal High Court ruling

by Staff reporter | 22 May 2019 | 77 Views