‘Structured currency part of monetary reforms’ Minister Ncube

Nelson Gahadza

Senior Business Reporter

The structured currency announced by President Mnangagwa last week is part of further monetary reforms aimed at engendering stability of the domestic currency, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube said.

President Mnangagwa said last week that the Government was working on a structured currency as part of efforts to foster currency and economic stability.

A structured currency is a form of monetary system designed to enhance stability and manage inflationary pressures. Unlike fiat currencies, which rely on government regulation and central bank policies, structured currency takes the form of both fiat and commodity-backed currencies.

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It combines the flexibility of fiat money with the intrinsic value and stability of commodities such as gold or any other precious metals.

Zimbabwe suffered two episodes of economic instability, in the decade to 2008 and post reintroduction of its domestic unit in 201, both of which manifested in currency instability and high inflation. Several measures to stabilise the currency have only had limited success.

Minister Ncube, speaking during an Economic Commission for Africa (ECA) press conference yesterday, said what the President announced was necessary policy forward guidance.

“What the President announced is what we may call necessary policy forward guidance, which means that the leader is announcing that Zimbabwe is on a path to further reforms on its currency and monetary system, which is a good thing for getting everyone geared up to realise that this is an important issue.

“This is a quest for currency stability, but I’m still pleased that so far Zimbabwe has shown very strong growth,” he said.

He said the way to do this was to link the exchange rate to some hard assets, such as gold, and when you do that, you actually have some kind of currency board-type system in place where the growth of domestic liquidity is constrained or covered by or limited to the value of the asset that is anchoring the currency in the first place.

“So, that is what was meant by that statement, which His Excellency talked about and mentioned, and work is ongoing in terms of how to structure it and will make full announcements,” said the Minister. He added that this would provide a lasting solution to the currency’s volatility.

The press conference was focused on the preparations for the ECA Conference of Ministers Finance, Planning, and Economic Development (COM2024) to be held from February 28–5, 2024, in Victoria Falls.

The conference will run under the theme ‘Financing the transition to inclusive green economies in Africa’.

Minister Ncube said over the last three years, Zimbabwe has grown at an average growth rate of 6,8 percent of gross domestic product (GDP) per annum. He said in 2021, the growth rate was 8,5 percent; in 2022, 6,5 percent; and in 2023, 5,5 percent. “So, 6,8 percent average over the last three years, and that’s quite strong, and this is in the face of some domestic currency instability that we have experienced,” the minister said.

He said through the currency regime, Zimbabwe had allowed a multi-currency regime where the domestic currency circulates and is used for transactions within the economy with other stronger foreign currencies such as the US dollar, Rand, Renminbi and Yen.

“You can use any of those currencies in Zimbabwe, but what has been measured over the years is the dominance of the US dollar and the Zimbabwe dollar, those two being the more dominant currencies.

“The US dollar has been the most dominant, so, going forward, we want to make sure that the growth that we have achieved so far, which is very strong, is maintained, and we can only do that if we have further stability in the domestic currency,” Minister Ncube said.

He noted that the idea going forward is to make sure the growth of liquidity is managed, and liquidity has a high correlation with money supply growth and inflation.

Minister Ncube said the Government has averaged a budget deficit of not more than 1,5 percent of GDP, and looking at the current account position, for the last five years, it has maintained a positive balance on the current account. Turning to the conference, Minister Ncube said Zimbabwe was very pleased to be hosting the conference of ministers this year, and the choice of Victoria Falls is a very special place in the world and not just in Zimbabwe.

“Basically, this is a place where Zimbabwe will be able to showcase its natural resources, which are critical in supporting the theme of abstraction, which is the financing transition to green economies,” he said.

He noted that there will be some critical side events that will speak to green economies, climate finance, innovation, technology, and the development of Africa.

“We are going to talk about how we are progressing on the sustainable development goals and meeting the agenda and targets.

“Green economy is a movement that brings a lot of shocks around the world, and we are all trying to figure out, as business and finance, how to manage our way through these shocks,” the minister said.

He noted that trying to get Africa into the food trade area and going and all those are critical and shocks that need to be dealt with.

“The international financial architecture is very critical; we are also aware that this is a topic that the G20 will be grappling with over the next few years to see how we can redesign the international financial system that is fit for purpose, fit for the shocks that we’re going through, and that will also uplift Africa from where it is.

“Africa needs to make a contribution to this debate and make the right input, and this conference will afford Africa at least a platform to be able to put ideas across to inform this agenda.

“So, we really look forward to hosting this conference, and Zimbabwe is a wonderful venue that has been chosen, and we look forward to everyone showing up,” Minister Ncube said.

Mr Claver Gatete, the ECA executive secretary, said the conference would focus on various areas of discussion, which will be followed up by side meetings.

He said, but the whole was focus on several things, which are also consistent with the summit of the future.

“This year, in September, it is in New York, where the main issues of financing climate and the health of the state, especially in the form of the international financial architecture, have been ready to talk about the climate, which is affecting almost every country on the continent and beyond.

“But having many of our countries really lag far behind, right now, in terms of authority, we have 1,6 million people who are not connected, who are not really part of this discussion that we are talking about, and there has to be a solution.

“That is why there is a group that is talking about it, but it is also a preparation and a discussion,” said Mr Gatete.

He noted that the meetings would also focus on the reform of the international financial architecture, which is also to see how the finance ministers, who are the consultants on the ground who are dealing with these issues on a day-to-day basis, would have a say.

“And also the central issue of financing in procurement, financing in climate, the issues that the country is facing, and what could be the possible solutions.

“There will also be a discussion on climate itself and also on the green economy and all other related issues, and the solution is to that.”

Mr Gatete said finance ministers are playing a leading role in that area, and there will also be ministers in charge of the environment.

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