THIS week, the business community recommended adoption of the South African rand as the major transacting currency to reduce concentration of risk associated with heavy reliance on the United States dollar currently accounting for 95 percent of all transactions in Zimbabwe.
Representatives from the Bankers Association of Zimbabwe and the Confederation of Zimbabwe Industries said the adoption of the SA rand was critical in resolving cash shortages.
Zimbabwe adopted the multi-currency system in 2009 to arrest hyperinflation and when the system was introduced, the rand and the US dollar were the dominant currencies in circulation.
However, the currency utilisation levels under the multi-currency system has continued to be skewed towards the US dollar, which has become more of a commodity, a safe haven currency or asset than a medium of exchange.
BAZ said adopting the rand will reduce concentration of risk associated with heavy reliance on USD transactions.
On the other hand, the CZI said the adoption of the rand could make cheap imports irrelevant as local producers would be forced to adjust their cost structures to regional levels. We strongly concur with the Bankers Association of Zimbabwe and the Confederation of Zimbabwe Industries. We all know that the major sources that should liquefy the economy are the FDIs, financial aid, remittances from the diaspora and exports.
This has resulted in cash and liquidity constraints that have negatively affected efforts aimed at turning around the economy and high cost of capital.
In the absence of adequate foreign currency, Zimbabwe has to rely on expensive external loans, with the cost of the largely short-term loans passed on to borrowers.
Apart from issues of scarcity of the hard currency and issues around its outflow, the greenback is in its own right too strong for the economy, making us less competitive.
From a political perspective, it is also difficult to make formal arrangements with the US for official dollarisation to ensure we get adequate supply of the dollar.
While there are concerns about volatility of the rand, we contend that this seems to be coming under control while maintaining its stability is also key for Africa’s second largest economy.
Since major sources of the hard currency are not performing well, we are of the belief that the authorities need to start seriously consider adopting the rand as an anchor currency. This will help us to raise the competitiveness of our exports since the rand has depreciated so much in recent years notwithstanding the risk of import induced inflation.
Over 40 percent of Zimbabwe’s exports find their way into South Africa and around 60 percent of imports are from South Africa.
Around 70 percent of tourists to Zimbabwe come through South Africa, making our southern neighbour an important trading partner to Zimbabwe and a major source of foreign exchange.
Government will also have the opportunity to get a share of seigniorage, which will be quite useful in supporting our National Budget.
More importantly, the rand is not prone to the threat of money laundering and other forms of capital flight as in the case of the US dollar. Last year alone, Zimbabwe lost about $1,8 billion through illicit financial flows.
However, we do appreciate that adopting the South Africa rand will require a political process to join the Southern African Customs Union and acceptance of associated loss of monetary sovereignty.