Chaos, Censure meet Gono's "Zeronomics"
Zimbabwe central bank governor, Gideon Gono's bi-annual monetary policy review statement is the impetus of rampant confusion and contempt barely 24 hours after he presented the review. In a feeble attempt to infuse new energy into a productive sector in extremis, Gono slashed interbank interest rates and holdings requirement rates by around 300 per cent. However, by far the most controversial aspect of the statement has to do with phase one of Gono's two phase currency reintroduction; removing three zeros from Zimbabwean dollar denominations.
A one way commuter omnibus trip that cost zW$150,000 yesterday, today costs ZW$150. Bread, which was officially pegged at ZW$200,000, now is a mere $200. Likewise, a bottle of beer now sells for a cool 300 as opposed to the "old" 300,000. Zimbabweans have been given 21 days to convert their money to the new 'money bases.'
But this conversion is not going to be hassle free. People will have to explain the sources of their money when they make deposits of the "old" currency in order to recalibrate. From the governor's mouth,
For years now, Gono has watched as money has literally "disappeared" from the formal market as people found better ways of using it on the informal market. Estimates suspect there is up to $35 trillion stashed in what Gono lampooned as "mini Reserve Banks" in the informal market. After months of wrecking his brain, he decided the only panacea to the formal market's anemea was to change the currency, and hopefully call the end on the informals.
Gono thinks changing currency denominations will force the informal market to fork over the money it has. In essence recalibrating the currency is a blitzkreig on the informal market.
If it works, it will only be a matter of time before the informals siphon out the "new" currency as they seek to escape the burden of overregulation of the formal market. Even worse for the governor is the possibility that the informal could completely dismiss the "new" currency and keep operating using "old" money standards.
In essence, we could now have two currencies; the new currency on the formal market, and the old on the informal market. That is one beast I am sure Gono did not intend to create.
Technorati Tags: Gono, Zimbabwe Economy, Monetory Policy, Economics
A one way commuter omnibus trip that cost zW$150,000 yesterday, today costs ZW$150. Bread, which was officially pegged at ZW$200,000, now is a mere $200. Likewise, a bottle of beer now sells for a cool 300 as opposed to the "old" 300,000. Zimbabweans have been given 21 days to convert their money to the new 'money bases.'
But this conversion is not going to be hassle free. People will have to explain the sources of their money when they make deposits of the "old" currency in order to recalibrate. From the governor's mouth,
Deposits that exceed $100 million for individuals and $5 billion for corporates will require proof of source of funds and a Zimra clearance certification for tax payment for a transaction underpinning the cash.Therein lies the unheralded intent of the sudden changes. The goal of the new monetary policy is not to stimulate the languid economy: no, Gono wants to eradicate the formal economy's perceived worst enemy, the informal economy. It is evident from the policy pronouncement that Gono and a his coterie of assistants along Samora Machel Avenue have been planning how best they can ambush the informal market for months.
Where holders cannot prove legitimate sources of funds, the cash will be deposited into Anti-Money Laundering Zero Coupon Bonds (AMOLAZEBO), with a minimum tenor of two years.
The owner of the cash will hold the bonds pending investigations and clearance with Zimra, after which they will then be redeemed at face value.
However, those who prove their funds to be legitimate after they are locked up in the bonds, will receive interest at the prevailing Treasury Bill rates.
For years now, Gono has watched as money has literally "disappeared" from the formal market as people found better ways of using it on the informal market. Estimates suspect there is up to $35 trillion stashed in what Gono lampooned as "mini Reserve Banks" in the informal market. After months of wrecking his brain, he decided the only panacea to the formal market's anemea was to change the currency, and hopefully call the end on the informals.
Gono thinks changing currency denominations will force the informal market to fork over the money it has. In essence recalibrating the currency is a blitzkreig on the informal market.
If it works, it will only be a matter of time before the informals siphon out the "new" currency as they seek to escape the burden of overregulation of the formal market. Even worse for the governor is the possibility that the informal could completely dismiss the "new" currency and keep operating using "old" money standards.
In essence, we could now have two currencies; the new currency on the formal market, and the old on the informal market. That is one beast I am sure Gono did not intend to create.
Technorati Tags: Gono, Zimbabwe Economy, Monetory Policy, Economics
