Categories: Business

The haunted trail; Bad old hyperinflationary tendency officially returns

THE Reserve Bank of Zimbabwe (RBZ) is set to inject more bond notes and coins into the economy to give a chase to the continued increases in prices of commodities.

In his Monetary Policy Statement announced last Friday,  Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, said the move will help ease the current cash shortages.

The central bank chief also noted that the current liquidity, has been out-ran by the ever rising prices of goods and services, hence the need to print more money to meet the increase in the demand for physical cash, as reflected by unending bank queues.

“In addition, visitors to the country including tourists are failing to access cash for their domestic transactions.

“Failure to get cash is undermining confidence in the local currency as well as forcing economic agents to resort to the illegal transactions in foreign currency and to selling cash at a premium,” he said.

Mangudya said the withdrawal of the US$ as a legal tender in the country, has created a void, forcing the RBZ to issue more notes and coins into circulation.

Though Mangudya maintained that they will not over print as a way to avoid triggering hyperinflation.

“The cash injections will not result in an increase in money supply as banks will use their existing RTGS balances to exchange for cash,” added Mangudya.

But economists believe printing more money, is not the solution because with no right fundamentals prices of commodities will continue to run away, and Mangudya will continue to chase, by printing even more money.

Though the US$ was officially removed from the market, businesses continue to charge in bond notes, RTGS, or ecocash, but using the prevailing US,$ rate  against the local currency. Companies are doing so, in order to remain in business, since the country is heavily dependent on imports.

Because of the over-dependence on imports, the Zimdollar/ US$ rates are a push factor in as far as the prices of commodities is concerned.

According to former minister of finance Tendai Biti it is naive to think that the exchange rate will stabilize, without productivity and with a huge import bill the rate will keep on shooting.

With fuel, power, fertilizers, drugs, electricity, and food being the major drivers.

Professor Steve Hanke maintains that Zimbabwe should return to full dollarisation, or put in place a currency board in order to stop inflation.

 

 

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