Mangudya’s Monetary Policy to be remembered for what it did not say

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By David Mutori

THE recent monetary policy announcement by the governor of Zimbabwe’s reserve bank attracted lots of criticism for both its omissions and commissions. Monetary policies are supposed to leave stakeholders able to answer the question ‘How does this affect me and my business?’ but governor Mangudya left everyone unsure about how the monetary policies will affect them and their businesses.

The biggest criticism is that the governor of left his flagship bond notes in ‘no man’s land’. The governor left everyone confused about the status of the ‘quasi currency’ – a currency onto which he pledged his own career as recently as 2016.

On one hand he tried to affirm his earlier message which was that the bond note had the same value as the US$. On the other hand, allowing depositors to open US dollar bank accounts that are different to bond and RTGS is akin to admitting that the two are not the same.

The governor’s confused message left analysts to conclude that he had accepted that the bond note is different. Some people even went further and predicted that the dreaded Zim dollar had returned through the back door!

While debates about the monetary policy pronouncements rage on, let’s revisit what the purpose of monetary policy is in order to try to make sense of the policy. Monetary policy is a policy instrument that is deployed to target inflation by either increasing or reducing the amount of money circulating in an economy. Monetary policy is also used to moderate growth. The instruments generally used are interest rates (to make money cheaper or more expensive) and money supply (to increase or reduce the quantity of money in circulation).

Monetary policy instruments can achieve the desired outcomes in normal functioning economies. Zimbabwe is however, different in the sense that the country has different currencies. For this post, I will describe two different currencies; good currencies (foreign currencies like US$) and ‘bad currencies’ (RTGS and bond notes). 

Mangudya’s monetary policies sought to stimulate circulation of ‘the good currencies’ without necessarily abandoning his legal obligations on the bond i.e. stimulate circulation of hard currencies (like US dollar) without performing a complete volte force against his flagship and so-called ‘bollars’.

Unfortunately, the governor created more uncertainty than was necessary despite his aim to give confidence and encourage people to use the US dollars that have been driven out of the market by bad money.

Announcing that the government will no longer grab US dollars and give depositors bond and RTGS did not help Zimbabwe’s trust deficit. The monetary policy will be known more for questions that it did not address than what it actually addressed and two questions that the governor should have answered are;

  • Will the Government of Zimbabwe honour its promise to guarantee the value of bond notes at the rate of 1:1 to the US dollar and swap at that rate?
  • Will the government of Zimbabwe guarantee existing bank balances at the equivalent of US dollar and allow account holders to withdraw US dollars at some point?

By not answering these two questions, the governor left the country in suspense – something that will stalk the economy in the short term. Zimbabwe’s recent past suggest that the government is capable of throwing account holders into the deep end. We can only hope that this time will be different.

Anyone wishing to debate this can contact David Mutori on