The school teachers in Zimbabwe are on strike for what we might consider a bizarre reason – they’re insisting that their salaries should be paid in cash. Yup, straight, cash, US dollars please, none of this depositing money in the bank and electronic money. The reason being that the monetary system there has electronic money – US dollars they’re supposed to be at least – worth less than cash dollars in the hand.
Something like this has happened before – the end of the Soviet Union led to bank rubles being worth very much less than cash rubles. There the reason was obvious though, you couldn’t get bank rubles out of the bank, something of a problem in a 2,000% annual inflation rate environment. Zimbabwe’s not there just yet, or at least not there again just yet:
Zimbabwean teachers will go on strike from Tuesday to press for salaries to be paid in US dollars, a union said, as pressure builds on President Emmerson Mnangagwa to contain a runaway currency crisis. Cash shortages have plunged Zimbabwe’s financial system into disarray, threatening social unrest and undermining Mnangagwa’s efforts to win back foreign investors who were sidelined under his predecessor Robert Mugabe. With not enough hard currency to back up funds showing in bank accounts, the value of electronic money has plummeted, prompting businesses and civil servants to demand payment in US dollars they can withdraw.
It’s, umm, odd, to say the least. The doctors have been on strike over the same point for a month now.
So, what’s going on? Well, one thing is that the government has introduced a transactions tax:
Finance minister Mthuli Ncube introduced a 2% tax on money transfers this month to broaden the country’s tax base, part of a series measures he’s implementing to stabilise the economy. The levy of 2c per dollar transacted replaced a previous tax of 5c per transaction.
Ah, yes, how lovely, and don’t we have varied people arguing we should do the same? A tax on all financial transactions would be a great way of raising revenue! Except, of course, the moment you do this everyone floods off into the cash and cash only economy where they don’t have to pay the tax:
The value of bond notes, introduced two years ago and which were meant to be worth the same as greenbacks, has plummeted since the new tax was announced, with locals rushing to buy goods while they still hold value. The majority of transactions in the country are electronic, which are worth even less than payments via bond notes. Shops charge different prices depending on whether customers use real dollars, bond notes or pay electronically.
Electronic money has to pay a 2% charge on each transaction in tax. Electronic money is thus worth less than the cash which doesn’t pay it. Another way of making the same point is that there’s been inflation in electronic money as a result of the new tax.
Or maybe it’s all about MMT?
Zimbabwe’s finance minister pledged to halt runaway government borrowing that has driven a crippling national cash crisis and undermined an attempted economic reset after the fall of Robert Mugabe. In a budget delivered on Thursday, Mthuli Ncube said the state would stop using a central bank overdraft to pay its bills in an effort to control a gaping fiscal deficit.
That is what MMT says, isn’t it? Government just prints the money it needs and spends it?
We here are fortunate of course in that it’s Zimbabweans who have to suffer through the pains of these bright ideas about money. For we really do have people here suggesting that MMT is the way to go, just print and spend, also that there should be a financial transactions tax on bank account movements. Fortunately no one here listens to Richard Murphy so we’ll have to look to Zimbabwe to see the effects.