Govt re-ignites currency debate


PRESIDENT Emmerson Mnangagwa’s remarks over the weekend that Zimbabwe would have a fully-fledged local currency before the end of the year, ending the multi-currency regime enacted in 2009, effectively re-ignited the emotive issue. This emphatically buttresses statements earlier in the year by Finance minister Mthuli Ncube’s on the re-introduction of an out-and-out currency.

The major premise on which the president based his argument for the return of the local currency is coded in his statement that the multi-currency had overstayed its welcome. Ncube, barely a day later, decoded the key reason behind his boss’ statement that: “We must regain control of our monetary and fiscal policy … It is quite clear that we need to move towards having our own domestic unit of account and the RTGS$ is the beginning of that.” Ncube lamented that without a monetary policy based on a fully-fledged currency it is difficult to control inflation.


Basically, Ncube and Mnangagwa are presenting a theory — a statement of what causes and why. To add value to this debate, we have to test the validity of their theory.


The currency Ncube and Mnangagwa wants to re-introduce is a fiat currency, just like the erstwhile Zimdollar. The word “fiat” comes from the Latin, which means “let it be done” or “it shall be”. One scholar defines fiat money as “intrinsically valueless money used as money because of government decree”.

The question then becomes how will Ncube and Mnangagwa’s promised fiat currency have stability if it is principally hey-presto money? Any currency, whether it is representative (standing in for a tangible commodity) or fiat, has to be backed by something for it to command value and acceptance. Representative money is backed by something tangible such as gold reserves. The mechanics of how fiat money finds the level of its value relative to other sovereigns’ currencies are primarily the stability or trustworthiness of the issuing government, the stability of the economy and the demand and supply of the money.

Firstly, when Ncube and Mnangagwa tell us that the re-introduction of the local currency, essentially fiat money, will restore economic stability, they are putting forward a tautology — a currency does not bring about economic stability — it is a stable economy that brings about a stable currency.


The nostalgic yearning for a re-appropriation of the flexibility of monetary policy is a subtle call to print money — whether it will be responsible, no one can divine into that.


If the answer is “yes” to these three questions, then Ncube and Mnangagwa’s new currency will have stability. The converse is true. The questions I have posed have precise answers, unfortunately, only in the future. The only way to predict how these three questions can be answered in the future is a predictive model based on current and past data.

There is a direct link between politics and economics.




The current RTGS$ is the bellwether for the new promised currency — the new currency by any name will just be fundamentally another RTGS$.

The IMF has not hidden its disapproval of the Afreximbank structured loans, making it clear these non-concessional loans based on collaterising our minerals and tobacco will scuttle negotiations for debt relief. This is a political hot potato — Zimbabwe is heavily dependent on Afreximbank loans to stabilise the dire forex situation.

Without other lenders coming to the party, Zimbabwe cannot do away with Afreximbank’s financial assistance as that will be politically suicidal.


Mnangagwa must not listen to simplistic economic arguments about currency return — he needs to know that sound politics and economics are pre-requisites to a stable currency. In our circumstances, politics impacts directly on economics.

Said the venerable scholar Charles Lindblom: “Politics is economics. Economics is politics.”
