Zimbabwe could soon be forced to adopt the South African Rand as it is incapable of maintaining a strong US dollar, an has economist said. ...
Zimbabwe could soon be forced to adopt the South African Rand as it is incapable of maintaining a strong US dollar, an has economist said.
Speaking at the Confederation of Zimbabwe Retailers (CZR) symposium to mark 100 days of bond notes circulation, economist, Ashok Chakvarati said no other economy except Peru can sustain the US dollar since Zimbabwe had no special relationship with the US Federal Reserve.
“There is no country in the world that has successfully used the US over a long period of time. There should be a special arrangement with the US monetary system which means the country will be getting fresh injections of the US dollar from time to time,” said Chakvarati.
Zimbabwe officially adopted the US dollar for transactionary purposes in 2009 following a protracted period of hyperinflation, but the currency has over the years been mopped out of the economy through externalization where hordes of cash pass through the country’s porous borders.
The country’s major sources of foreign currency are exports, lines of credit and humanitarian aid.
“Unless you have a special relationship with the source, the use of the US dollar will be an impediment to the economy. We have become the source of the US dollar for the rest of Africa through leakages,” Chakvarati said.
The bond notes, drip fed Zimbabwean economy has failed to maintain the required liquidity ratio of 15 percent with statistics revealing that only US$420 million against US$900 million is currently circulating in the economy.
“We need US$900 million to US$1 billion in the cash system,” said Chakvarati.
Nostro accounts according to the Reserve Bank of Zimbabwe (RBZ) have depleted to US$170 million against a target of US$250 million, resulting in the growing challenges of foreign payments.
He said the bond notes that are backed by a US$200 million facility from Afreximbank were not a permanent solution to the liquidity challenges in the economy.
RBZ Deputy Governor, Kuphukile Mlambo weighed saying, it would be prudent to adopt the Rand so as to benchmark prices with South Africa.
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| Zimbabwe Incapable Of Maintaining US Dollar ... Says Ashok Chakvarati |
Mlambo said Zimbabwe’s challenge is a public that holds US dollars as a store of value which results in scarcity of the currency on the market, adding that the solution to externalisation was to stop using the US dollar.
The RBZ has released US$102 million in bond notes into the economy since November last year.
Although the bond notes have eased cash shortages as witnessed by lesser bank queues, the surrogate currency has not generated the much needed exports, according to the central bank.
“We are pleased with the downstream benefits to the economy that we have less queues but the US$200 million is insufficient to cover the US$900 million gap,” Mlambo said. – FinX
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