We need to make more transactions in ZiG

The dedollarisation of the Zimbabwe economy is not just a Government policy, but is also an economic necessity, as almost every country has found that it needs its own currency or at least a regional currency where its economic requirements are calculated in the joint monetary policy.

Using someone else’s currency means that you are tied to that country’s fiscal and monetary policies, and even if they are well managed you still have the problems of economic cycles out of alignment, and are beholden to their inflation rates and the particular problems and successes of that country.

We saw this for almost a decade after the collapse of the first Zimbabwe dollar and the adoption of the US dollar.

A lot of our trade, and most of our regional trade, were tied to neighbours with their own currency and who were able to be a lot more competitive than Zimbabwean industry, hence the near collapse of our own industrial base.

Even if we had been willing and able to tie ourselves to the rand we would have been a lot more successful, at least if we had a respectable economic policy. Zambia under President Levy Mwanawasa, and then on his death Rupiah Banda, is a good example with dramatic agricultural and industrial growth and a move away from living off copper.

So dedollarisation is not a stupid or unworkable solution, and the multicurrency system in use at the moment is probably the worse of both worlds.

The Government and the Reserve Bank of Zimbabwe have, however, made the joint policy that we will move towards the desirable status of operating with our own currency basically on a voluntary basis, without serious compulsion at least until we have reached the stage when a significant majority of local transactions are in ZiG.

Once that has been achieved then the last step, that all local transactions must be in ZiG is not a big leap.

Zimbabweans over a certain age remember when all buying and selling was in the Rhodesian and Zimbabwe dollar, and even younger Zimbabweans have found how useless a wallet full of US dollars can be in most countries.

You cannot spend them as no one will accept them and you have to change them at a local bank or bureau de change, and even then the teller will want to see your passport and probably check the screen to see if the software has you listed as a potential criminal or money launderer.

Some major hotels and large retailers will take US dollars, but not in cash. They want the plastic Visa or Mastercard, which at least tells them that someone else has made the required checks now universal under global banking rules and so it is probably safe to take your money.

And even then your bill is in the local currency and the conversion is done by the banking software at the bid rate, the price banks buy foreign cash.

Zimbabwe has a double oddity with multicurrency. For a start we have a small negative balance of trade, that is we import more than we export; but at the same time we have a positive balance of payments, that is inflows of foreign currency are significantly higher than outflows.

The gap is filled, with extra, by diaspora remittances, which account for 17 percent of inflows, and to a lesser extent by aid money usually channelled through international organisations and NGOs.

The other half of the oddity is that exporters are only legally obliged to convert 25 percent of their earnings to ZiG, that compulsory purchase of foreign currency by the Government, and that diaspora funds are counted as free funds, that is recipients can do as they like with the US dollars.

Reserve Bank Governor Dr John Mushayavanhu has made it very clear that there are no plans to compel conversion of diaspora remittances. But at some stage this will be voluntary, when the receiver needs to do this to buy almost anything in Zimbabwe, or pay Zimbabwean bills.

The dedollarisation can be done gradually, although not so gradually as to make it a never-never proposition, by having every more bills, taxes, fees and invoices paid in ZiG.

The Government has made a start by having taxes on business profits paid at least 50 percent in ZiG, so even the most dogmatic of exporters have to buy some.

But it could do more. VAT is paid in the currency it is collected in, those selling goods and services in Zimbabwe not so much paying VAT to Zimra, but passing on the VAT they have collected from their customers who are the ones who pay.

The same is done with other taxes, such as PAYE, where the employer is the agent of Zimra, rather than the legal entity that is charged the tax. They simply forward what they deduct.

But it could be possible to enforce a partial conversion before this forwarding, which might well encourage businesses to pay quicker since they will want to avoid any possible risk from exchange rate fluctuations.

The Government could also decree things like tollgate charges are paid in ZiG. That would produce what we see in our neighbours, where border posts have bureaux de change on the premises for business and personal travellers to get the local currency to pay their bills. A 24-hour border post has a 24-hour bureau de change so no one suffers.

One major breakthrough in the private sector would be with petroleum fuels. The positive balance of payments and negative balance of trade saw the rather smart move of moving the largest single import, private sector fuel, dollarised.

Effectively this means that diaspora money, directly or via a chain on transactions, is used for this major import.

It also explains that curious spate of overinvestment into service stations, with one almost every 500m in urban areas, by business people wanting a guaranteed source of foreign currency.

They have to buy fuel, with the fuel taxes, in foreign currency but the rest of their payments and their profits could be in any currency. By having these additionals in US dollars means they are legally earning foreign currency.

The Government via the Reserve Bank, and the Reserve Bank directly, feed some of the foreign currency they earn into the interbank system to fill the gap caused by both the negative balance of trade and the desire by exporters to keep as much of their cash as possible in US dollars.

This sort of intervention Is done around the world and is a function of central banks, but some of it at least could be done indirectly in Zimbabwe using fuel.

We could have the State-owned chains of service stations switching to ZiG, the foreign currency component needed to buy fuel coming from some of the cash now fed into the interbank market.

We could also have a set of regulations that all other service stations would have to sell some of their fuel in ZiG, paying a pile of their costs in local currency even if their main cost, the wholesale fuel, is paid in US dollars.

Among other gains would be a more rational set of investment decisions and people with money looking at other investments rather than seeing if they could squeeze in yet another service station with ever-lower market shares and underemployed staff as more competition is added.

There could be other moves that would see ever higher percentages of transactions in ZiG and bringing us ever closer to the point where even diaspora remittance receivers have to pop into a bank before they go shopping. This would not be compulsory conversions, but would be a practical matter since bills have to be paid.

Banks, as a matter of practicality, should make it very easy for customers to convert to ZiG through their online platform, moving the money from their foreign currency account to their local currency account, and that should also allow the banks to operate at least this service on a far smaller margin than the more than 5 percent used when tellers are involved.

We have returned to the 30 percent of local transactions in ZiG, after seeing the percentage fall to less than 20 percent, but to move forward to a real economy we need to get through a couple of bottlenecks.-bsinessweekl