Steps on Zim currency reform laudable

Zimbabwe has seen this happen over the past few years. Ordinary people earning wages and salaries, including some senior managerial staff, have seen their standards of living decline. And everyone knows someone, or has heard of someone, who has flourished. They always seems to have a bag of cash with them and “do deals”. These are the people who have a vested interest in a continuing high inflation rate. No one likes them very much.

This is why so few are weeping over the way Zimbabwe’s currency reform is being implemented. For the reform goes far beyond just chopping off three zeroes, as Mozambique did earlier this year and other countries, from France downwards, have done in the last 50 years.

The zero-chopping makes money easier to handle and removes the need to perform higher mathematics when buying a couple of bars of soap. But the real meat of the reform is a determined effort to rein in the black market and hurt those who have done so well out of manipulating the situation.

Vast sums, more than three quarters of Zimbabwe’s currency in circulation in fact, could be wiped off the map at midnight on August 21. The sum will, in fact be less, since there is leakage through the wall erected by the Reserve Bank of Zimbabwe to keep out and destroy money that had been deliberately removed from the normal business and banking systems.

The total destruction of black-market wealth, and the closing of a “black” economy is possible. The three western occupation powers in Germany did this in their zones in 1948. But Germany at that stage did not have a real modern economy, having been totally defeated in war just three years before.

Zimbabwe had to keep the economy going through the transition, and ensure that no harm came to the ordinary person, or for that matter to the well-paid professional or businessman who follows rules, pays taxes and pays larger bills by cheque. In retrospect it seems that the transition could have been done more quickly than the three weeks set aside for it, but that this would have required far more preparation, far more people in the know and so far more chance that something would leak. That in turn would have alerted those who bank with a set of trunks to start off-loading their gains very quickly before the changeover was formally announced.

But the reserve bank does now think it may well be possible to shorten the period. We hope they can, so that the gains of currency reform are maximised.

There is a strong tendency to blame all inflationary pressure on Governments. And the Zimbabwe Government is not blameless in this regard. Prolonged deficit spending and overtaxing of the productive sector made the economy vulnerable to hyperinflation.

But the people of Zimbabwe generally, through their desperate desire for imported trinkets, and some groups in particular, through their manipulation of shortages and the inflationary environment, are more to blame.

Those who hammer the government for having printed money last year to buy food for Zimbabweans hit by drought, have not thought the matter through. The Government did not hoard that money, it spent it. It is the people who received the money and took it out of the business and financial systems who have caused the damage. They did not use this money to build and equip factories; they did not use it to open new mines; they did not even use it to build shops and offices. They used it to do deals, to subvert the legal foreign currency market, to buy and sell bits of paper.

If those who received the money had used it sensibly and productively there would still have been a surge in inflation rates, but not nearly so dramatic as what actually happened, and part of the cure for inflation would have been created by this extra cash. The same people have also subverted the programmes created to boost the productive sector. Special concessionary loans were made available, and while some used these to boost production, others cheated the government and people of Zimbabwe by buying luxury cars and the like.

Gono, in his long review of monetary policy, dwelt at one stage on how the UDI regime of Ian Smith had managed to beat sanctions and grow the economy. One crucial factor in the lengthy survival of that regime was the general acceptance of equality of sacrifice and the equal sharing of benefits, at least among whites. In fact this was so successful that it took a major liberation war to destroy the regime.

It has been the inequality of sacrifice, and the gross inequality of distribution of benefits, that has so demoralised Zimbabweans in their battle against inflation. The steps taken last week, especially if they can be intensified, should force those who have lived richly through the wealth transfers allowed by inflation to see just how bad it can be, and force these people into more productive ways of creating wealth.

August 2006
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