Tydskrif vir Geesteswetenskappe
Print version ISSN 0041-4751
WESSELS, Buks. Dollarisation as economic solution for the Zimbabwean demise. Tydskr. geesteswet. [online]. 2010, vol.50, n.1, pp. 50-65. ISSN 0041-4751.
The Zimbabwean economic and political malaise has been going on for longer than a decade and has deteriorated unabated. Runaway hyperinflation reaching unthinkable proportions, an almost hundred percent unemployment rate and a shattered currency with literally no external value or esteem characterise this demise. Fiscal profligacy funded by an ever increasing fiscal deficit has played its part in this socio-economic tragedy. This state of affairs would not have been possible if the Reserve Bank of Zimbabwe had fulfilled its role as protector of the nation's currency. Sadly, the Bank slavishly accommodated the government's request for printing more money and did not render any sign of independence from government as a respected central bank should have done. As in many other cases of hyperinflation, this weakness provided the basis from which the evolving tragedy gained momentum. The gigantic proportions of the continuous socio-economic and political tragedy predict an even bleaker future for the country if not attended to in a decisive way. No instant political or economic solution exists for this appalling situation, but economic restoration has to start with certain basic steps of economic reform. This paper suggests official dollarisation as an alternative exchange rate regime with which to clear up the economic disorder that currently characterises the economic scene. The paper explains the term "dollarisation", its features and the underlying rationale of the regime as a super-fixed exchange rate system for Zimbabwe. Thereafter the possible advantages and disadvantages that Zimbabwe can obtain from the system are highlighted, accompanied by a brief discussion on randisation as a possible alternative solution. Especially important among the advantages is the fact that dollarisation will help to restore the lost credibility of the Zimbabwean policy-makers since it will now be imported externally from an anchor country and its currency. This will not only substantially decrease the inflation and interest rates, but it will also contribute to promoting saving, investment, economic growth and employment. It will, furthermore, stabilise the dysfunctional Zimbabwean credit system, enhance long term lending contracts and correct the misallocation of resources caused by hyperinflation. These benefits must be balanced by certain costs of dollarisation, especially the loss of seigniorage income, the loss of monetary autonomy and national pride, as well as the loss of the lender-of-last-resort-function of the central bank. However, in the case of Zimbabwe these costs are found to be thoroughly overshadowed by the benefits derived from dollarisation. In addition, the Zimbabwean situation and the current stance of its economy actually fit the prerequisites for a country that should seriously contemplate dollarisation. Although dollarisation is supported as a possible solution for Zimbabwe, randisation may also work but will have to be considered with care. South Africa is indeed the biggest trading partner of Zimbabwe and also has deep financial ties with the latter. Nevertheless, the volatility in the exchange rate of the rand and the possibility of loan default on South African loans to Zimbabwe are risks in need of contemplation. Another, but less credible policy alternative for Zimbabwe, is to adopt a currency board arrangement where the exchange rate of the Zimdollar is not only firmly fixed to the South African rand, but also fully (100 per cent) covered by rand reserves as a back-up measure of credibility. Yet, under the current circumstances dollarisation presents itself as a more likely system with which to obtain rapid and trustworthy results. Although dollarisation on its own will certainly help, it will not pose a "quick-fix" for the Zimbabwean demise. Dollarisation can not compensate for corruption, disruptions in the social structure and a lack of transparency in the political and economic system. Furthermore, it can not compensate for a lack of human prudence in decision-making, a lack of protection of property rights and the absence of a rule of law. The latter aspects require fundamental and credible reforms on the political and juridical front, without which no economic rescue package will have any success whatsoever.
Keywords : Zimbabwe; economic reconstruction; dollarisation; hyperinfl ation; central banking; monetary policy.