Zimbabwe Money

Reserve Bank  Of Zimbabwe

Money has a significant role in economic growth. 
Zimbabwe's recession is worsened by an absence of local money and credit. Instead of developing practical solutions to resolve the money crisis, politicians and analysts are locked in an existential power struggle.

Credit is economic money. Failing to understand this, The Reserve Bank of Zimbabwe(RBZ) printed fuelling hyperinflation. Without factories to stimulate employment and money flow, money flowed direct into pockets driving up prices.

Money prospers, when it is given as credit to firms for productive activities. RBZ hyper-inflationary printing crowded out productive investment and encouraged speculation.

Currently RBZ cannot create base money. Also, banks cannot lend given high loan delinquency levels and dismal economic performances. Lacking credit,  Zimbabwe's economy lacks the stimulus it needs to recover.

RBZ needs an operational framework to rebuild a balance sheet. This is  not permission to print base money, the bank's ineptitude would bring back super inflation. A well funded balance sheet is  needed to support banks that feed  the Zimbabwe's economy.

RBZ owes banks foreign currency and this weakens the liquidity of owed banks- meaning less funds for credit. These two predicaments indicate RBZ cannot achieve outcomes in this environment of repeating political failures. Politicians and analysts identify they is a problem, they do need to work together and resolve the crisis.

　

Money Talks

“There are good reasons to think that the nature of money is not yet rightly understood.” John Law, 1720 (with the collapse of the Mississippi Bubble)
The above qoute is valid today, given Zimbabwe does not have its own currency. Money value disappears due to failures in the management of monetary fundamentals.

 “Irredeemable paper money has almost invariably proved a curse to the country employing it.” Irving Fisher, 1911
This classical economics quote brings back nightmares of hyperinflationary suffering, with prices doubling every 24 hours for Zimbabweans, around November 2008. This was the second highest ever recorded rate of hyperinflation. The worst hyperinflation recorded by any country, in this century.

 “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” John Maynard Keynes, 1920.
In the 1990's, the Reserve Bank of Zimbabwe started printing large amounts of Zimbabwe dollars(qausi-fiscal activities). This ushered in the new age of quantitative easing,  now being practised by the Federal Reserve, European Central Bank and other Central Banks around the world. Do the gurus at central banks know what they are doing?

 “Since the time when President Richard Nixon broke the final tenuous link between the dollar and gold in 1971, no major currency, for the first time in history, has any connection to a commodity. Every currency is now a fiat currency…” Milton Friedman, 1991
The Reserve Bank of Rhodesia, which is now the Reserve Bank of Zimbabwe, managed to escape the fiat currency curse because of sanctions. One longstanding Rhodesian record is- it was the first country to be sanctioned by the United Nations, in 1966. This, very first, 'mandatory trade embargo on an autonomous state' forced the country to pursue protectionist import substitution industrialization. The value of the Rhodesian Dollar was preserved, as imports were kept low and the majority was not catered for by: health, social or educational services.

“We very much believe that, if you have a debased currency, that you will have a debased economy.   The difficulty is in defining what part of our liquidity structure is truly money.” Alan Greenspan, 2000.-
Back to modern Zimbabwe, hyperinflation destroyed a struggling industrial base. Bringing in the US Dollar obliterated liquidity ensuring industry will struggle to recover. Quantitative easing, in the western part of the world, is destroying industrial potential, by subsidizing and inflating financial assets. The growth of derivative financialization has driven liquidity into opaque 'dark pools' leaving industry short of cash investment.