Matters are obviously going to be better now that the RTGS system is trading at market prices, as determined by the interplay of bank transactions. But we really do need to get one matter clear. There never was any shortage of foreign currency in Zimbabwe. There was, we could say, a shortage of foreign currency at a specific price but that’s a rather different statement. Even then, that’s not the correct one. Rather, there was an excess of RTGS and bond notes.
There’s an importance to this. If there was a shortage of foreign currency then it’s possible to blame any subsequent problems on those evil foreigners who wouldn’t supply enough currency. Anything from just they’re not keeping Zimbabwe’s needs in mind all the way through to their attempting to deliberately undermine the nation. The problem becomes external to the actions of the Zimbabwean government that is – for everyone does understand that the local government doesn’t control the supply of foreign currency.
This isn’t, in the slightest, the correct way to understand what has been happening. Thus we cannot allow people to get away with statements like this:
Since the southern African country introduced its local surrogacy currency, the bond note, in 2016, it had pegged it at a ratio of 1:1 with the US dollar, but this did not last for long, as foreign currency shortages on the formal market resulted in parallel market rates spiralling to unsustainable levels.
It’s not foreign currency shortages which caused this.
A shortage at a price, perhaps. I find it very difficult, right now, to buy one euro for only 25 cents euro. But that’s what was being tried, wasn’t it? RTGS and bond notes were worth about 25% of their face value. So, by insisting on the 1:1 exchange rate with the US dollar the authorities were insisting that they should be able to buy $1 US for 25 cents US. This is likely to cause problems. Shortages even.
But it’s still not a shortage of FX, it’s a shortage at a price. Anyone willing to pay $1.01 US for $1 US would have been able to fill their boots to their heart’s content. There simply wasn’t an FX shortage.
On the second point, the cause of this, it’s still not an FX shortage. It’s an excess of RTGS and bond notes. The Zimbabwean government simply produced too many of them. When supply increases more than demand price falls – that’s all there is to it. This applies to money just as much as it does to anything else.
This linguistic folly of calling it all “foreign exchange shortages” lets off those in government who caused the problem. If they’d had a floating, not fixed, exchange rate there would have been no FX shortage. And if they’d not printed too much of the new money there wouldn’t have been either.
It’s the Zimbabwean authorities who caused the problems, let’s not forget that, and let’s not disguise it by talking about “shortages” caused by we don’t know who. Zimbabwe’s money problems are caused solely by the people in charge of Zimbabwe’s money – the Zimbabwean government.