Way before 1965, as UDI was declared in Rhodesia- now correctly called Zimbabwe, the country had foreign currency shortages. In another attempt to overcome the currency hoodoo, Zimbabwe adopted the US Dollar as its official monetary base in 2009.
However all that glitters is not the greenback. The US Dollar has rapidly lost its ability to to buy since 1971. From 1971, up to today, the US Dollar has fallen in value by over 80% in real buying power terms. For Zimbabweans who hold the US Dollar long term, the implication is they will buy less and less, in years to come.
This inflation will be less than hyperinflations prevalent when The Reserve Bank of Zimbabwe printed Zim Dollars. Given the US dollar is still global reserve currency, and US industry is financialized, the US escapes hyperinflation by exporting its inflation across the globe in US Dollar denominated financial assets.
Zimbabwe has structural economic weaknesses which mean the Greenback should not be the long run solution to financial problems. In fact, after sanctions were imposed after UDI , by import substitution the country managed to effectively deal with its currency problems. Zimbabwe needs to build its industrial and infrastructural capacity, as opposed to financializing its economy.
Zimbabwe is rich in precious metals and minerals which can be used to back a Zimbabwe dollar. Even a 50% partially backed Zimbabwe dollar, in a tightly regulated currency market , can out perform the US dollar long term.
To achieve long term currency and economic sovereignty the country needs technological capital, a good tax revenue collection mechanism, tax paying industry and sophisticated financial control plus governance mechanisms.
Indigenisation will worsen technological capital inflows, increase corporate tax evasion, reduce revenues overall and worsen governance in the long term. Adopting the dollar is a short term cure to a long term problem. Indigenisation is another short sighted means to dealing with long term currency issues.
Tightening currency flows is just the beginning-the journey to economic strength will be harder as more needs to be done.
Tuesday 13 September 2011
Currency Curse
Way before 1965, as UDI was declared in Rhodesia- now correctly called Zimbabwe, the country had foreign currency shortages. In another attempt to overcome the currency hoodoo, Zimbabwe adopted the US Dollar as its official monetary base in 2009.
However all that glitters is not the greenback. The US Dollar has rapidly lost its ability to to buy since 1971. From 1971, up to today, the US Dollar has fallen in value by over 80% in real buying power terms. For Zimbabweans who hold the US Dollar long term, the implication is they will buy less and less, in years to come.
This inflation will be less than hyperinflations prevalent when The Reserve Bank of Zimbabwe printed Zim Dollars. Given the US dollar is still global reserve currency, and US industry is financialized, the US escapes hyperinflation by exporting its inflation across the globe in US Dollar denominated financial assets.
Zimbabwe has structural economic weaknesses which mean the Greenback should not be the long run solution to financial problems. In fact, after sanctions were imposed after UDI , by import substitution the country managed to effectively deal with its currency problems. Zimbabwe needs to build its industrial and infrastructural capacity, as opposed to financializing its economy.
Zimbabwe is rich in precious metals and minerals which can be used to back a Zimbabwe dollar. Even a 50% partially backed Zimbabwe dollar, in a tightly regulated currency market , can out perform the US dollar long term.
To achieve long term currency and economic sovereignty the country needs technological capital, a good tax revenue collection mechanism, tax paying industry and sophisticated financial control plus governance mechanisms.
Indigenization will worsen technological capital inflows, increase corporate tax evasion, reduce revenues overall and worsen governance in the long term. Adopting the dollar is a short term cure to a long term problem. Indigenization is another short sighted means to dealing with long term currency issues.
However all that glitters is not the greenback. The US Dollar has rapidly lost its ability to to buy since 1971. From 1971, up to today, the US Dollar has fallen in value by over 80% in real buying power terms. For Zimbabweans who hold the US Dollar long term, the implication is they will buy less and less, in years to come.
This inflation will be less than hyperinflations prevalent when The Reserve Bank of Zimbabwe printed Zim Dollars. Given the US dollar is still global reserve currency, and US industry is financialized, the US escapes hyperinflation by exporting its inflation across the globe in US Dollar denominated financial assets.
Zimbabwe has structural economic weaknesses which mean the Greenback should not be the long run solution to financial problems. In fact, after sanctions were imposed after UDI , by import substitution the country managed to effectively deal with its currency problems. Zimbabwe needs to build its industrial and infrastructural capacity, as opposed to financializing its economy.
Zimbabwe is rich in precious metals and minerals which can be used to back a Zimbabwe dollar. Even a 50% partially backed Zimbabwe dollar, in a tightly regulated currency market , can out perform the US dollar long term.
To achieve long term currency and economic sovereignty the country needs technological capital, a good tax revenue collection mechanism, tax paying industry and sophisticated financial control plus governance mechanisms.
Indigenization will worsen technological capital inflows, increase corporate tax evasion, reduce revenues overall and worsen governance in the long term. Adopting the dollar is a short term cure to a long term problem. Indigenization is another short sighted means to dealing with long term currency issues.
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