THE Zimbabwe Coalition on Debt and Development (Zimcodd) says the United States dollar will remain the base currency for trading purposes in Zimbabwe because businesses prefer trading in a stable currency.
In his monetary policy statement on Wednesday, central bank governor John Mangudya effectively brought back the local currency after denoting the existing electronic balances, bond notes and coins in circulation as real time gross settlement (RTGS) dollars, making them official legal tender alongside a basket of other currencies.
“As the country denominates all bond notes and coins, mobile money and RTGS balances to RTGS dollars, the country’s currency crisis remains unresolved. What this implies is that people and entities will have to return all the different balances they hold back to the bank to be redeemed in RTGS dollars,” Zimcodd said.
“Without safeguarding measures in place, people’s RTGS balances, bond notes and coins and mobile money will be eroded just like in the case of 2008.
“With the high demand for foreign currency in securing fuel, electricity, medical necessities, cooking oil and water treatment chemicals, the exchange rate is likely to be inflationary,” it added.
The organisation said while the policy statement gives an assurance that mechanisms were in place to safeguard against inflation, the actual modalities and tools remain unclear.
“Worse still, the monetary policy statement is coming way after prices have risen to unprecedented levels. It will be a miracle for the monetary policy to influence the reduction of prices, given that prices are sticky downwards,” it said.
Zimcodd said the monetary authorities should address the root cause of the economic imbalances bedevilling the country and not the symptoms. This, it said, requires a holistic approach that addresses deficiencies in both the fiscal and monetary spectrums.
“There is need for a simultaneous adjustment of the fiscal policy framework towards strengthening manufacturing sector capacity utilisation,” it said.
The organisation said the monetary policy will perpetuate and widen the trust deficit already existing between citizens and the monetary authorities, which has led to the current poor banking culture.
“Therefore, there is need for monetary policy consistency to restore confidence in the country’s financial system. It would have been prudent for the monetary authorities to introduce a standalone and credible Zimbabwean currency, which will address the liquidity challenges once and for all,” it said.