The first bold, strong and positive monetary policy statement from the Federal Reserve’s Dr. John Mushayavanhu [MPS] Its delivery today justified its delay.
Monetary policy strategy depends on correct policy assumptions and correct analysis of the realistic background; Zigzag, as a regulated currency backed by gold, is indeed the right financial remedy with the best chance of extricating Zimbabwe from the morass of the currency trap it set itself in 2009 when it unwisely switched its economy to the dollar under cover. Adopting a multi-currency system.
But, and this is a very big deal, the ZiG cure will only work and break the country’s 15-year currency jinx unless and only if – come rain or shine – the monetary authorities and the government will ensure by all means available and necessary that at least the following two fundamental policy decisions are kept strictly in MPS delivered today:
1. “The auction system has been replaced by an improved interbank foreign exchange market under a wish-seller (WBWS) trading arrangement. Following this development, a transparent price discovery mechanism has now been put in place in the interbank market. The Bank will continue to provide trading liquidity to the market using surrender proceeds amounting to 25% of exports. [paragraph 147, page 63 of the MPS].
2. “The ZiG shall be anchored and fully backed at all times by a composite basket of reserves consisting of foreign currencies and precious metals (mainly gold), which the Reserve Bank receives as part of royalties in kind and is maintained in the bank’s vaults. Foreign currency balances will be accumulated.” Through market purchases of the 25% surrender requirement as well as the sale of some precious metals received as royalties. [paragraph 161, page 66 of the
MPS].
While it is never easy for the government in general anywhere, and therefore it will not be easy for the government of Zimbabwe in this case; Not least because of the tempting lure of quantitative easing; However, the authorities must ensure their religious and ruthless commitment to observe, defend and preserve the two above-mentioned political decisions at all times.
Doing so would certainly gain the government and state much-needed public confidence in the economy and society; Public confidence has been eroded by the lack of trust that clearly exists between the government and the public.
The simple, if as yet incommensurable, truth is that Zimbabwe must come to terms with the fact that dollarization in 2009 was a curse on the Zimbabwean economy.
And when, on that day, the Zambian kwacha and Mozambican mekal were respectively beaten in more brutal ways than the Zimbabwean dollar in 2008; The authorities in Zambia and Mozambique have maintained this course and maintained confidence in their national currencies.
In Zimbabwe, there was panic in 2009, and then the cardinal sin of unknowingly dollarizing the economy was committed. The rest is history, but very painful history.
The measures announced in today’s Monetary Policy Strategy have the potential and potential to lift Zimbabwe out of the curse of currency dollarisation. These measures represent a major first step, and it is important to take the rest; To move forward.
All that is required is to maintain the will behind the political direction of the PAP presented today, and for this will to pave the way for the successful implementation of the PAP! He was writing on X
