Rand shrugs off plan for 'common currency'
February 20, 2009
By ETHEL HAZELHURST and Reuters
The rand strengthened against the dollar on Thursday despite news that Zimbabwe's government hoped to use the unit to anchor its worthless currency.
Ian Cruickshanks, the head of strategic research at Nedbank Capital, said: "Presumably the market isn't taking the news seriously."
Zimbabwe's prime minister, Morgan Tsvangirai, said Harare was engaging South Africa over the possibility of using the rand to boost foreign exchange liquidity.
This followed a suggestion earlier in February by President Kgalema Motlanthe that it "may be practical for Zimbabwe to enter into an arrangement with the Reserve Bank here and allow the rand to become the common currency".
Tsvangirai told business leaders: "I don't want to pre-empt this, but we are really engaging the South Africans to make sure we can discuss using the rand to provide relief."
When asked what the new unity government of Zimbabwe was doing to ease an acute foreign currency crunch, he said: "We are in an emergency situation, a fire fighting situation. For now we are talking of an emergency plan."
On Thursday the South African currency moved from R10.20 against the greenback at its open to be bid at R10.01 at 5pm, having firmed to R9.95 earlier in the day.
"It certainly wouldn't be the news that Zimbabwe wants to share our currency," said Cruickshanks, "because the market would view such an arrangement in a negative light. We wouldn't want South Africa to take responsibility for their monetary policy."
If Zimbabwe adopted the rand it would automatically adopt the interest rates and monetary policy of the SA Reserve Bank. Namibia, Swaziland and Lesotho all use the rand alongside their own currencies, but Reserve Bank governor Tito Mboweni has in the past ruled out a formal arrangement with Zimbabwe.
The governor said yesterday that the Reserve Bank had not been formally approached about the proposal to adopt the rand as legal tender in its northern neighbour.
"We have not been approached at the Reserve Bank," Mboweni said. "The finance ministry has not been approached so, as far as I'm concerned, this is a rumour."
Last week Gideon Gono, the governor of the Reserve Bank of Zimbabwe, said a formal bi-monetary arrangement with South Africa "is not an option we are considering".
It is impossible to put a number on Zimbabwe's inflation rate because it is rising so quickly but Gono admitted recently that broad money supply growth had risen from 81 000 percent in January 2008 to 658 billion percent in December, according to the Zimbabwe Independent.
This is an indication of the rate at which the central bank is printing money - at a time when the real economy is shrinking.
In January the Reserve Bank of Zimbabwe issued the world's first 100 trillion unit note.
Many transactions in Zimbabwe are already carried out in US dollars or rands but these would not be enough to support the entire economy.
So Zimbabwe would face the problem of acquiring enough rands to circulate, either through exports or a very large loan from a bank.
As the country's export capacity is almost exhausted and it poses a poor credit risk, neither provides an obvious solution unless donors fund the exercise.
|
|
