Productivity Only Way To Break Zimbabwe's Currency Cycle - Gift Mugano
Economics Professor Gift Mugano says increasing productivity is the only way to break the currency cycle in Zimbabwe and reinforce the stability of the Zimbabwe dollar.
Some economic commentators believe that the local currency “is technically dead” as US dollar transactions are now around 80 percent.
Speaking during an interview with Business Weekly, Gift Mugano said “the easiest policy move” that the government can take to break the currency reforms merry-go-round is to stop corruption and the issuance of statutory instruments. Said Mugano:
We need to be a productive economy. Arguably addressing production challenges requires a day on its own but off the top of my head, I would argue for the removal of arbitrage opportunities in our foreign currency markets, reform the financing of agricultural models by moving away from state finance to a market system development where actors in the value chains take an active role in financing agricultural production and use of special economic zones as effective vehicles to attract investments.
Most importantly, the easiest policy move that government can take is radically stop corruption and guarantee policy consistency, clarity, and predictability and make a deliberate position to stop the issuance of statutory instruments.
He also said the new salary increment for civil servants will increase the volume of transactions in US dollars which will in turn result in an increase in “fake US dollars” in the banking system.
Mugano said the “fake” US dollars or US dollars in RTGS are being created by the banking system and Government, combined, through the process of issuance of loan creation and treasury bills which are later discounted. He said:
The new salaries will also place civil servants in better positions to borrow in the US dollar, which will drum up the electronic US dollar as banks draw more income in the form of interest rates and charges.
The severity of the loans on civil servants and of course other workers from the private sector are centred around the fact that they don’t generate foreign currency.
In the absence of figures of the US dollar balances in the government purse, one can only predict that the new salaries can be destabilising because they are quite significant.
Since its re-introduction after ten years of a multi-currency system, the Zimbabwe dollar’s value has plunged dramatically.
On 21 March 2023, the official exchange rate was US$1: ZWL$915.
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