APART from its “sentimental value” — given the resemblance with the notes discarded almost two decades ago — the new notes injected into the economy are bound to fail, as hyperination is ravaging the country again.
Reserve Bank of Zimbabwe governor, John Mangudya
While many are in agreement that there was little Reserve Bank of Zimbabwe (RBZ) governor John Mangudya could do to stop the carnage, as politics is wreaking havoc in this market, the sharp fall of the Zimbabwe dollar has set off a number of “amusing theories and reminders” about just how bad things are in this former breadbasket. From Internet trolls to acclaimed authors such as Philip Haslam and Russell Lamberti, analysts say President Emmerson Mnangagwa’s “second republic” is exactly one of those places where: people get paid to look for cash (because landlords and numerous retailers demand real dollars) and there is ample evidence that money can really destroy nations! “My advice would be to treat the new ZW notes like hot potatoes,” Steve Hanke, an applied economics professor at the John Hopkins University told The Financial Gazette this week, adding “there is only one solution, which is to fully dollarise the economy and prohibit the government from issuing any monetary or pseudo-monetary liabilities.
And while Zimbabwe’s recently-introduced currency continues with its downward spiral — owing to confidence, and macro-economic problems — the Baltimore-based hyperinationary authority said Haslam’s aphorism not only “holds true and some validity, but Zimbabwe is largely a place where the government destroys money. On the other hand, local economist Persistence Gwanyanya said the new notes were a “temporary and unsustainable” solution to Zimbabwe’s cash predicament, as the highest denominations were lower than daily requirements, inflation — at nearly 1 000 percent — keeps running away and shortages would worsen anyway since the ratio of physical money is still way below the recommended 10 to 15 percent threshold”.
And fears that the Zimbabwe dollar would soon be rendered useless also come as it has sharply dropped to $80 against the American dollar, while market jitters have been added by the anticipated unloading of $18 billion worth of a stimulus package into the economy.
Amid indications that there was serious jockeying and shadowboxing for the “sentimental trillions” in the central Bank’s vaults — since Robert Mugabe’s days, and said to be worth billions — Haslam not only says in his six year-old book that the genesis of Harare’s cash-printing problems could be traced back to the 80’s, but hyperinflation in this country was always rooted in six main points or developments, which he chooses to call “gorge moments”.
Mthuli Ncube, Finance Minister
In the first instance, past inflation becomes future inflation, as prices… usually rise by less than the increase in money supply, but always faster than the increase in market liquidity in latter stages; the central Bank’s money printing antics are simply not enough to satisfy national demand — as notes simply cannot keep up with price increases — and stage four, and five are where lending ends, and a real scramble or right for value. Almost every hyperiinfnation ends with a class of borrowers who profit from the entire currency collapse like profiteers or thieves,” he said in the book titled When Money Destroys Nations.
At gorge moment five, faith in the currency died. The only things keeping the Zimbabwe dollar from outright death at this point were legal tender laws and government force — a force that had to increase in reach and ferocity as the value of money deteriorated, Haslam said. And the acclaimed authors said the rapid — or veld-fire-like — growth of hyperinflation in any country, which eventually sees a currency die or what they call gorge moment six, takes the form of a cultural phenomenon. This is usually accompanied by over-regulation and serious market interference, including raids on foreign currency accounts, other monetary instruments, destruction of value — and even use of “propaganda” or introduction of fancy lexicon to justify a number of measures, they said.
“The currency could not be maintained by government force any longer, and it crashed out of use,” Haslam and Lamberti said. And as Mnangagwa’s country hurtles down a slippery slope marked by endless interventions at 00-plus statutory instruments, a deluge of instruments and directives by various organs to restrict money supply in the economy as well as rampant price increases, many cannot shake off the feeling of a return to 2008 where the CATO Institute says hyperinflation had reached 89 sextillion percent. In the book, whose foreword was written by Leon Louw, it was not only observed that “money mischief perpetrators” are often projected as rescuers by the use of clever language and obfuscation, but political systems and decisions, public confidence in its leadership, investor psychology and financial sector sophistication are some of the factors, which influence hyperinflation growth — and possibly death in a country’s currency.
“Hyperinflation is hyper-plunder of virtually all wealth. If more people understand a few basics, the propensity of… governments to confiscate wealth by eroding currency values will be constrained,” the Free Market Foundation executive director said. “Hyperinflation… is extreme price inflation. often referred to just as ‘inflation’, price inflation is a general increase in prices in the economy. Hyperinflation is essentially a period of economic chaos when confidence in the currency deteriorates markedly, leading to a rapid, chaotic and uncontrallable rise in the prices of goods, and services and the eventual collapse of confidence in the currency,” the book said. On his part, Zimbabwean economist and writer Jonathan Waters said the situation then was more about senses than specific rates.
‘Exact inflation becomes meaningless in Zimbabwe no one thought in percentage inflation. You just got a feel for it — you knew the rate on any day in a very intangible way. It was the topic at every dinner table and we talked about it all the time. There were many indicators that you could apply but none was definitive. Knowing the true rate was more of a sensory ability,” he said under a chapter, which also says “hyperinflation is never a moment, but a collection of critical points and process which is really to do with an established unit losing its usefulness as money”. And as the exchange rate implodes, which accelerates inflation, this will eventually kill of the Zimbabwe dollar.
And as Zimbabweans ponder Gwanyanya, and Haslam’s theories that “the daily expenses of those who do not receive newly printed money… tend to rise faster than incomes, money printing artificially inates economic activity in an economy, while making economic conditions more difficult for folks and inflation will ultimately make people poorer by stealing their purchasing power”, the odds between that horrible time and now could not be starker. In the meantime, anxieties and worries have been worsened by Finance minster Mthuli Ncube’s recent admission that the country’s gross domestic product is likely to contract by 20 percent in 2020 at the back of the Covid-19 pandemic.
Kipson Gundani, another local economist, said the recent cash injection will have no impact due to inflation and the non-normal demand for cash. “Because people in Zimbabwe are rational, they have an abnormal level of demand for cash as a result of what is obtaining and what has happened in the past, you will see that people have a negative outlook on the monetary system and the economy as a whole,” he said, adding “although the cash injections were essential, they were not a sustainable solution. “It is a moving variable essentially because of the confidence issue and inflation. The underlying factors… are much bigger than money supply, Gundani said. While privileged commentators such as Eddie Cross insist authorities will do everything in their power to “limit inflationary cash” and the economy continues to struggle with many issues, only time will tell if the latest Gaisecke & Devrient consignment will not just prove to be a “real collector’s item” because the new notes’ value might only be realised in the future!