‘Diaspora bond-backed local currency can address cash challenges’

18 Jan, 2018 - 00:01 0 Views

The Herald

Zimbabwe’s cash shortages can be addressed by the issuance of a new local currency backed by a diasapora bond, a leading economic expert has said. Zimbabwe is currently using a basket of multi-currencies after it dumped its hyper inflation-ravaged currency nearly a decade ago.

But the Southern African country has battled cash shortages in the last few years owing to a disappearance of mainly the United States dollar from the official market due to a myriad of challenges among them externalisation and cash hoarding by locals and foreigners.

An attempt to address the cash shortages through the introduction of bond notes, a form of currency with an official value of 1:1 with the greenback, backed by a facility issued by the African Export and Import Bank has largely failed to improve the situation.

This has forced the public to resort to wire transfers and mobile money, but this has suffered a host of other problems including inflation of prices. A leading economic expert, Professor Ashok Chakravati, who has advised government on various economic issues, said the country had two options to address its currency crisis, one of which is the issuance of a $1 billion diaspora bond within the next six months to one year.

“I believe it is possible for us to actually come forward or release a diaspora bond of $1 billion. This diaspora bond can back the introduction of a new Zimbabwe dollar equal to $1 billion,” Prof Chakravati told legislators at a post 2018 national budget meeting recently. You take money that comes from the diaspora bond, you do not keep it in Zimbabwe but hire an international investment bank to hold those monies. It can be any bank that comes with the best proposal.”

“It will not cost us anything because the bank will take that billion dollars and invest it on the international market and the interest will be paid to those who will have invested in the bond.” Prof Chakravati said the Zimbabwean diaspora would likely be more confident in investing in the bond with the money held outside the country compared to it being in the custody of the Reserve Bank of Zimbabwe.

“If I am in the diaspora I will not invest a $1000 or $100 000 in the current Reserve Bank because of lack of trust. There are good people in there they are trying their best but we have a history,” the University of Zimbabwe economic lecturer said. Holding of the bond outside Zimbabwe assures investors that the money would not be used by government as has previously happened, he said.

“If I want to liquidate that bond I can liquidate it because there is real money over there,” Prof Chakravati said. If Zimbabwe decides not to introduce a new currency, it can instead adopt the currency used by its biggest trading partner, in this case, South Africa, Prof Chakravati said.

This is what many other countries that have faced currency challenges have done, he argued. But government has on many occasions shot down this proposal to have the Rand as the main currency used in the country. The South African Rand is already one of those in the multi-currency basket being used in the country although the market widely resents it due to its volatility. Prof Chakravati said Government had not given any meaningful reason why the Rand could not be used as the anchor currency. -New Ziana

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