ECONOMIST Eddie Cross, believes the best way to stabilise the prices of basic goods in the country and spur development is to end the use of the United States dollar in the economy. Speaking on 3Ktv programme, Vantage, Cross suggested that authorities would soon go this route as they seek to improve lives of ordinary people and protect business. Below are excerpts from the interview.
Q: There has been a strong clamour for the country to abandon the dedollarisation programme and return the country to the dollarisation era, is this feasible?
A: Of course it is feasible, we did it in 2009, we did it in 15 minutes. I was seated in the Parliament by the time and Chinamasa stood up and made a short presentation to the house where we dollarised. The consequences of that were dramatic, in two weeks the Zimbabwe economy had begun to work again after almost half a decade, we had nothing in the shops, filling stations were empty and everyone was basically living on imported goods. At that time we had dollarised on a run. I was in business, I had my own business at that time for the previous three years we hadn’t traded in local currency at all, I was 100 percent dollarised in my own currency even though that was technically illegal and impossible.
Today the situation is quite different we reintroduced local currency when the new government took power in 2018 and that was a process steered by new minister of finance. He knows exactly what he was doing and he recognised pretty quickly after he became a minister that in fact we didn’t have our own currency and it was called RTGS$ meaning real time transfer system which is a system used by banks for electronic transfers between financial institutions.
RTGS is an electronic form of currency, at that particular point in time we had 23 000 million dollars in our bank accounts, that’s not real currency. You call it USD but its RTGS$ and what actually happened over the past three or four years, the government had been printing currency but not in paper form but in electronic form and it was this electronic money that we were holding in our bank accounts, it’s virtually book entry.
The minister said to us that’s not real money and I agreed with him at that time. I said if I took a thousand rtgs to the Reserve Bank of Zimbabwe and ask for a thousand, if they gave me a thousand USD I’d have a queue outside rbz of about 10km in five minutes because everyone would want to do that. He then separated the RTGS from USD and that began the process of devaluation of the former and to today the RTGS is worth a tiny fraction of what the USD is worth and effectively what he did was to devalue 23 thousand million dollars which is a mountain of money down to about USD3 000 and they did that over a very short period of time at that particular point in time we introduced the auction and the auction stabilised the currency for a while and because of the growth in the economy and the increasing demand for foreign exchange.
The first auction rate we held we bought 15 million dollars on the table and pretty much made demand. Today I will suspect real demand on the auction rate is 120 million dollars a week and we are not even meeting the small fraction of that so the result is the market is growing away from the auction and the auction is not responding by increasing the volume of sales for a variety of reasons. With the results that we are now seeing the emergency of parallel market rate called the PMR which today stands at — I had a transaction yesterday 325:1. This is depreciating the real dollar which is on the auction on Wednesday this week it was 155. It’s all about 100 percent the auction rate. This is the central problem… and it is because of the depreciation of the rtgs since it was introduced in 2019 by this government. It is the value which made people lose confidence in it .
They have not lost confidence in the means of exchange, people are using it. infact 80 percent of transactions are in RTGS but they are electronic transfers. Paper transfers on the streets are probably 70 percent USD that is why people are asking why can’t we just go back to USD. We can’t do that because the USD, we learnt that in the GNU that adopting USD means we have adopted a very high cost for our domestic producer, we became a supermarket for the whole region. When have you seen supermarkets in Zimbabwe full of goods manufactured in Zambia? That’s exactly what happened. In fact at the height of the GNU 95 percent of what was in the supermarkets was imported. No country can operate on that basis, by adopting our own currency, one thing they have done is to give life to local currency and export industries. Export industries are growing so fast at this moment in time. Last year we saw a 50 percent increase in export earnings. Today it’s 60-65 percent everything you see in the supermarket is manufactured in Zimbabwe.
Q: It is clear from what we are saying that even business does not want a return to dollarisation because it impacts adversely and negatively on the domestic production levels and it will render the supermarket economy so who wants this return to usd and for what purpose?
A: Problem is most people are earning Rtgs. Employers may be paying something in usd but the majority of the payments are in rtgs, all civil servants are paid in rtgs except for a small allowance in usd. Problem is when they are going to the market place, to buy fuel or even a cup of coffee it will cost about rtgs 600.
Q: Who wants the full use of usd when business is against it and we are trying to explain even the rationale of those who want to take us back to the use of usd or dollarisation?
A: I was talking to someone who runs a private school who was buying goods from a wholesaler, on Tuesday just before this weekend and they recorded ZWL450 000 after the weekend it was ZWL520 000. So if you are paid in rtgs, if you have rtgs in your bank account, the real value of that currency is shrinking daily. People want to get rid of it as quickly as possible, they don’t want to earn it, they will rather be paid in USD.
For the productive sector including our exports sector they want to be paid in a currency which reflects value of their activities for that unique local currency. It’s impossible for China or Japan to develop a world without yen and yuan. I have been watching the yen closely and the Japanese have been devaluing the yen right now they went from 109 to 125 in the last six weeks or so, why?, to make their exports industry more competitive .
If we are gonna develop or create jobs in Zimbabwe we have to develop our productive sector. Consumers want USD and producers want domestic currency.
Q: For an ordinary consumer, what should happen for them to say we have gone past the era of steep prices in the supermarkets because it is them who want usd and the producers want rtgs , what should happen
A: First priority is to stabilise local currency, this runaway devaluation PMR has got to be stopped. Two weeks ago, the new director of the World Bank was here, she made a statement and she was actually spot on that the fundamentals in Zimbabwe do not justify the PMR rate basically we have a surplus of foreign exchange.
I have been involved in Zimbabwe’s economy for 60 years and I cannot remember a time when we had surplus foreign exchange domestically either in the Rhodesian days or Zimbabwean days.
Today we have six months import cover in the banks and yet we have these run away exchange rates. The main reason for domestic inflation today is not the war in Ukraine, it’s not printing money in the reserve bank, it’s the PMR rate.
Why does the PMR run and today it’s on 325. I told the minister of Finance that we are going to be on 400 in a matter of weeks and he said look we have to attend to this. He agreed to meet when he comes back from Washington to address this. Unless we get this under control, we cannot see any return to stability of the domestic market and problem with this is the devaluation of people’s income so our civil servants are not earning enough to live on.
Q: Can we say politicians are really clean, they are not part of this when we hear so and so has been caught with this kind of money?
A: Every tsotsi in Zimbabwe is involved in this game. My daughter runs a small business she turns a couple of million dollars per month and pays her staff .
When she pays in rtgs they immediately change the money on the black market into usd and everyone is doing that and this is driving the PMR rate so the problem is at the centre which is government policy and until we can bring the majority of foreign exchange earnings into the market and traded properly…
We should go back to inter-bank market on a proper basis. All incoming revenues and hard currency should be converted on the day it arrives like in SA so our biggest exporters will be credited with local currency not foreign currency, if they want foreign currency go to your bank just give invoice to your bank and your bank will pay it.
We have sufficient foreign currency in the country today to make that leap. Somalia did it, we are a much more sophisticated economy, we are ten times the size of Zambia, If Mozambique, if Zambia can do it, we can do it. The problem is so many people are benefiting from arbitrary opportunities.
Q: We are going towards the 2023 elections, we have drought, we did not do well in the just-ended agricultural season now we have problems which are emanating from Russian-Ukraine war, do you think the economic climate is right to hold these elections or the current economic climate could be the harbinger of worst things to come.
A: I think the economy is doing very well, the basic fundamentals are absolutely sound
Q: The people out there will tell you that we do not understand these economic fundamentals when a loaf of bread is now costing $2 and know that you guys have roads and everything that you are fixing but I am hungry. How can you revive their hopes?
A: Can I just correct you, a loaf of bread still costs a dollar what is changing is the rtgs price actually our economy is actually expanding very fast and I think for the first time we are creating jobs the problem is you can’t expect people in the poor areas to benefit from the trickle down. We have a structural problem for example people growing cotton we are not paying decent prices for cotton farmers.
Farmers are not properly supported there are many reasons for that, banking system is not able to provide the kind of support which they use to provide but I’m here to correct this thing, fundamentally our economy is growing rapidly .
In have a friend who went to New Zealand to see his daughter two years ago, a local business man. He was stuck in New Zealand for two years, he came back three weeks ago … he said what the hell have you done to the Zimbabwean economy since I was gone, I can’t believe the difference, I look at my figures and I said because your daughter was running your business, you should leave her in charge just to check because the economy is growing so fast.
We are probably the fastest growing economy in the southern Africa today, the question is how do we maintain that and I have said to people who ask me the same question about the implications of this radical change in policy towards the exchange rate, the impact for the election. And I said don’t do it, the consequences of the dollar being devalued on a continuous basis by the system to the time where we destroyed completely as we did it in 2009, when the local currency had no value or whatsoever…
I have asked businessmen if we floated, If we liberalise completely what will be the exchange rate? One young guy who is a big businessman who runs one of the Inscor divisions said it could be 80:1 because we have a physical surplus of foreign exchange.
Q: When should we really return to normalcy where we have the Zimbabwe dollar as the sole currency in the market?
Q: When he(Mthuli Ncube) returns from Washington are you likely to put that on the table given what has happened previously that these guys have previously taken advice, would you speak confidently that the days of multicurrency system are nearing the end?
A: Yes, I would advise businessmen that are borrowing RTGS today in the expectation that it is going to devalue very much, so that repaying that currency will not cost you that much. When finally repayment day comes, be very careful because if you borrow a million dollars today and you think it’s going to be worth $500 or $600:1 by December instead $150 next week or overnight you are in big trouble
In 2009, I was sitting in Parliament on the front opposition bench and Chinamasa made a 15 minutes statement, soon after that I went on to shake his hand and said minister that was the bravest thing I have seen anybody doing…