Zimbabwe has no plan to adopt rand - Gono
February 10, 2009 Edition 1
Ethel Hazelhurst
The Reserve Bank of Zimbabwe was not considering the use of the rand to anchor its worthless currency, the central bank said yesterday.
This follows a suggestion by President Kgalema Motlanthe on an SABC Sunday broadcast 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" to help Zimbabwe's crippled economy, now that a government of unity was in place.
Gideon Gono, the governor of the Reserve Bank of Zimbabwe, told Business Report yesterday that a formal bi-monetary arrangement with South Africa "is not an option we are considering", adding: "I have not exercised my mind on this issue."
Gono said his recent statement on monetary policy did not refer to using the rand to anchor the Zimbabwean dollar.
Gono gave no updated inflation figures in his policy statement, but did say that broad money supply growth had risen from 81 000 percent in January last year 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.
Gono yesterday denied knowledge of a document bearing his name, which describes the rand as "the naturally obvious currency of choice to anchor the Zimbabwean dollar".
SA Reserve Bank spokesperson Samantha Henkeman declined to comment on Motlanthe's suggestion, but said the bank had "not been formally approached".
Dennis Dykes, the chief economist of Nedbank, said: "Zimbabwe's terrible monetary policy has contributed to its dysfunctional economy. If the rand were adopted, Zimbabwe would automatically adopt the interest rates and monetary policy of the SA Reserve Bank."
Mthuli Ncube, the head of Wits Business School and a professor of finance, said that if the new Zimbabwean government wished to base the economy on the rand, it would face the problem of acquiring enough rands, either through exports or a very large loan from a bank.
As Zimbabwe's export capacity is almost exhausted and it poses a poor credit risk, neither provides an obvious solution.
An analyst who did not want to be named said it was difficult to calculate the sum needed. "In South Africa about R1 000 is circulating for every person," he said. However, the local economy was much larger and wealthier and Zimbabwe could manage with less. "But nevertheless, we are talking of billions of rands."
Ncube said the SA Reserve Bank could make the rands available through the banking system. On how the scheme would be financed, he said South Africa's action "would be a trigger for donor countries". And the loans raised would eventually be paid for from export proceeds, once the country was functional again.
But replacing Zimbabwe's currency would effectively contain inflation only if "the government also practised fiscal discipline", he warned.
He dismissed criticism that this would be a burden to South Africa. "The Zimbabwean economy is only a small fraction of the size of South Africa's economy. There are already an estimated 3 million Zimbabweans living in South Africa [and] sending remittances in rands. The rand is already being used in Zimbabwe and these suggestions would merely formalise things." Business Watch, page 2
