By Bloomberg News
ZIMBABWE should adopt the rand as its currency, one of a series of fundamental reforms needed to restore economic stability in the country, says the country’s former finance minister, Tendai Biti.
His call is an endorsement of the government’s efforts to link Zimbabwe’s economy to SA’s currency as it grapples with a foreign-exchange shortage that has spawned the fastest price increases since hyperinflation a decade ago.
Zimbabwe abolished its own currency in 2009 and mainly uses the US dollar. The American currency is too strong for the Zimbabwean economy, Biti said on Friday in an interview in Johannesburg.
Joining the so-called Common Monetary Area, in which Namibia, Lesotho and Eswatini peg their currencies to the rand, would reduce costs, he said.
“The advantage of joining a rand monetary union would be that it would foist some much-needed discipline on the Zimbabwean economy,” Biti said.
“It would also enhance regional integration,” by giving manufacturers in the country access to 300-million consumers in Southern Africa, compared with the 100,000 he estimates can still afford goods usually bought by the middle class in Zimbabwe.
Biti, who served as finance minister from February 2009 until September 2013, is deputy chair of the opposition Movement for Democratic Change.
Zimbabwe is considering pegging a planned new currency to the rand, one of several proposals being discussed by the government, the Harare-based Financial Gazette reported last week. It may be favoured because SA is the country’s biggest trading partner, it said.
The rand has had a strong start to the year, gaining 5%. That makes it the second-best performing emerging markets currency, based on a basket selected by Bloomberg, behind the Russian ruble.
In addition to the US dollar, Zimbabwe’s central bank also prints quasi-greenbacks called bond notes and an electronic currency known as RTGS$ to fund rampant government spending and stem the shortage of foreign exchange. That has resulted in a convoluted system of exchange rates, with consumers charged different prices depending on how they pay even though the government insists all the securities are at par with the dollar.
Biti said both the bond notes and RTGS$ should be scrapped.
Inflation reached an estimated 500-billion percent in 2008 before the Zimbabwe dollar was scrapped. The rate rose to 42% in December from 31% in November.
Price-growth risks are entering another hyper-inflationary cycle, driven by the government’s “insatiable appetite” to spend money it does not have, Biti said.
“To have two hyper-inflationary spells in a period of 10 years is a miracle of failure,” Biti said.