Speaking on Monday evening at a public lecture on Fiscal, Trade and Monetary Issues, Ashok Chakravarti said countries such as El Salvador, Panama and Ecuador, that had adopted the United States dollar, were successful, as they had strong trade links with the US and also had a good source of supply for the greenback.
The public lecture was held at the Confederation of Zimbabwe Industries (CZI) offices.
“The obvious currency of choice is the rand, because of the strong trade link with South Africa. Seventy percent of our exports go to South Africa and 40% of the imports come from South Africa. The rand is an answer to many of our problems exports, imports financial and export links and Diaspora remittances. The rand is a non-convertible currency that will remain in the region and, therefore, cash will be maintained,” he said.
Chakravarti said 90% of the country’s exports were to the Sadc region and trade links with the US were negligible.
“Immediately adopt the rand informally as what was happening in 2009 for all transactions and maintain other currencies as foreign currencies. Take the $200 million and get R2 billion and put that into the economy,” he said.
In the medium term, the country will have to assess joining the Common Monetary Area and start discussions, he said.
Reserve Bank of Zimbabwe governor, John Mangudya has said the country cannot just start using the South African rand without having its own currency.
According to a paper by Daniel Makina, the overall consideration on a currency should be underpinned by the acceptance that the use of the US dollar, as both a reference currency and transactional currency, was not sustainable and that the monetary regime of choice should be one that restores competitiveness and provides sufficient liquidity in the economy.
“Using the rand would enable the economy to ride on the competitiveness of South Africa brought about by the depreciation of the rand for as long as the rand continues to trade at historical lows against the US dollar.
Furthermore, the mere change from the US dollar to the rand would trigger a correction of the cost structure of the economy, because prices of goods and services would be benchmarked with those in South Africa,” he said.
Makina said the rand would inject liquidity in the economy because most of the external trade was conducted with South Africa and, hence, rand currency circulation would be “a two-way flow, unlike the US dollar, which has a multi-way flow”.
The paper was produced by CZI and the National Economic Consultative Forum.
Chakravarti said bond notes were a partial solution to the liquidity crisis in the economy and they could be used effectively if sufficient US dollar notes were available for conversion when the bond notes were deposited at the bank.
The central bank is set to introduce the bond notes, which are supported by a $200 million African Export Import Bank-backed facility.
The facility is expected to give an incentive of 5% to exporters but denominated in bond notes.
- Newsday