Strive Masiyiwa Is Right, Zimbabwe Should Price In SA Rand – Anything But Zim$

The precise details of this call for Zimbabwean businesses to price in South African Rand, put forward by Strive Masiyiwa, might not be entirely correct. But the overall idea, that no one should be trying to price nor transact in variations of the Zimbabwe dollar are entirely correct.

In conventional economics not having your own currency is something of a problem. It means that there can be no monetary policy that is locally determined. Thus there’s no monetary policy attuned to the needs of the local economy. This is the error of the euro for example. But there are times when this convention needs to be cast aside:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Billionaire telecoms tycoon Strive Masiyiwa says Zimbabwe could achieve price stability if all goods were priced in the South African rand, and the country could do this “overnight”. Masiyiwa, whose Econet is one of the biggest companies in Zimbabwe, reacted after the price of bread almost doubled to RTGS$3.50 from $2 this week. [/perfectpullquote]

This is entirely true. For the price of bread didn’t just double in terms of South African Rand, did it?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The people who pay for a lot of goods are Zimbabweans living in South Africa, through their remittances. The cost structure – labour and goods – in Zimbabwe is distorted by the arbitrage of the United States dollar as a currency of settlement for rand imports.[/perfectpullquote]

Well, no, not entirely It’s affected by the manner in which the Zimbabwean government fixes the official price of the Zim$ – and RTGS and bond notes and the rest – against the US$ and thus depresses the black or free market rate. The solution to which is simply to ditch use of the Zim$.

For, yes, in normal times a local currency is that conventionally good idea. The one time it breaks down being when complete incompetents are running money issuance and thus monetary policy. Which is what has happened to Zimbabwe twice in the last couple of decades and looks well on the way to happening a third time.

Don’t use the Zimbabwean dollar simply because you can’t trust the Zimbabwean government about the Zim$.