(Bloomberg) – Zimbabwe is expected to adopt the South African rand as a national currency, one of the fundamental reforms needed to restore the country's economic stability, said former Finance Minister Tendai Biti.
His call supports the government's efforts to link Zimbabwe's economy to the currency of neighboring South Africa as the country faces a shortage of foreign exchange, leading to the highest price increases. fast since the hyperinflation of ten years ago. Zimbabwe abolished its own currency in 2009 and mainly uses the US dollar.
The US currency is too strong for the Zimbabwean economy, Biti said Friday in an interview in Johannesburg. Joining the so-called common currency area, in which Namibia, Lesotho and Eswatini are setting their currencies to the rand, would reduce costs, he said.
"The advantage of joining a rand monetary union would be to impose a discipline vital to Zimbabwe's economy," Biti said. "This would also strengthen regional integration" by giving the country's manufacturers access to 300 million consumers in southern Africa, while he estimates that 100,000 people still can afford products usually bought by the middle class in Zimbabwe, he said.
Biti, who served as Minister of Finance from February 2009 to September 2013, is vice-chair of the opposition Movement for Democratic Change.
'Miracle of failure'
Zimbabwe plans to involve the rand in a planned new currency, one of the many proposals being discussed by the government, the Harare-based Financial Gazette reported last week. It could be favored because South Africa is the biggest trading partner of the country, he said.
The rand had a good start to the year, gaining 5%. This makes it the second most successful emerging market currency, based on a basket selected by Bloomberg, behind the Russian ruble.
In addition to the dollar, Zimbabwe's central bank also prints near-dollar bills, called bonds, and an electronic currency, called RTGS $, to fund rampant public spending and end the currency shortage. This has resulted in a complicated exchange rate system, with consumers charging different prices depending on how they pay, even though the government insists that all values are at par with the dollar.
Biti said the bonds and RTGS $ should be dropped.
Inflation had reached about 500 billion dollars in 2008 before the elimination of the Zimbabwean dollar. The rate went from 31% in November to 42% in December. Risks associated with price growth are entering another hyperinflationary cycle, motivated by the government's "insatiable appetite" for spending money it does not have, Biti said.
"Spending two periods of hyperinflation in a 10-year period is a miracle of failure," Biti said.
(Updates with rand performance in sixth paragraph.)
– With the help of Pauline Bax, Brian Latham and Amogelang Mbatha.
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