Introduction

An economy operating without its own currency strategy could work for or against it. It is
definite that the economy is going to experience turbulences on a micro and macro- economic
level. However to ensure the presentation is comprehensible some terms need defining.
Zimbabwe abolished its national currency in 2009 after, according to International Monetary
Fund estimates, inflation surged to 500 billion percent in 2008 and the Zanu PF lost its
parliamentary majority. The country is currently operating a multiple currency system, with the
USD being the predominant currency. Although it does not have an official agreement with the
United States Federal Reserve to use its currency, the Government conducts all its business using
the USD. Rumours of the reintroduction of the Zim Dollar have surfaced on a number of
occasions over the last five years. In each instance some investors with funds in financial
institutions immediately withdrew their funds, fearing that funds held in foreign currency would
be expropriated and compensated in Zimbabwean dollars.
The currency rumours and potential economic instability and uncertainty have also been
deterring foreign investors. It is generally agreed that the multi-currency system used in
Zimbabwe has served an important transitional role to reverse run-away inflation and help
resurrect the countrys short term credit market. However, dollarization is not the optimal longterm solution for Zimbabwe as both ZANU-PF and MDC-T agree that, from a nationalistic
perspective, Zimbabwe should eventually return to its own currency. However, given the lack of
the Reserve Banks lack of credibility, simply bringing back the Zimbabwe dollar may not be the
way to go. If Zimbabwe wishes to revert to its own currency, the central bank would order all US
dollar bank accounts to be converted to the new Zimbabwean currency and require citizens to
swop their US dollar banknotes for new Zimbabwean notes at a chosen exchange rate.

Definition of terms
Currency
A system of money in general use in a particular count

Industrialization
This is the process of social and economic change that transforms a human group from an
agrarian society into an industrial one. It is a part of a wider modernization process, where social
change and economic development are closely related with technological innovation, particularly
with the development of large-scale energy and metallurgy production. It is the development of
industry on an extensive scale.

Industrialization is the process that changes a dominantly agrarian society into a society in which
industries dominate, with regard to their contribution to GNP and employment, Hewitt (1992).
Industrialization is the period of social and economic change that transforms a human group
from an agrarian society into an industrial one, involving the extensive re-organisation of an
economy for the purpose of manufacturing. Sullivan et al (2003)

Harm of operating without a currency

Loss of control over the exchange rate regime
An exchange rate regime is defined as the system that a country's monetary authority(central
bank), adopts to establish the exchange rate of its own currency against other currencies.
Examples implementation of a free floating exchange rate or fixed exchange rates among other,
where the market dictates movements in the exchange rate. Operating without a currency means
losing its ability to directly influence its economy as it has no control over the exchange rate as
well as its right to administer monetary policy. This leads to problems in importing as well as in
attracting foreign investment since the exchange rate is determined by the parent country of the
currency, which subsequently affects industrialization

Low demand of goods and services

Supply of goods and services is determined by demand, and due to lack of currency in
Zimbabwe (liquidity crunch), the demand for goods and services declined. Therefore, companies
are being forced to cut production because of low demand, which makes it difficult to continue
operation, subsequently affecting industrialization, for example the recent ban on imports.

Central Bank ceases to be lender of last resort

Lender of last resort is an institution, usually a country's central bank that offers loans to banks or
other eligible institutions that are experiencing financial difficulty or are considered highly risky
or near collapse. The central bank loses its role as the lender of last resort for its banking system.
While it may still be able to provide short-term emergency funds from held reserves to banks in
distress, it would not necessarily be able to provide enough funds to cover the withdrawals in the
case of a run on deposits. The central bank will not be able to issue loans to financial institutions,
which means other companies cannot acquire loans from financial institutions, thus hindering the
possibility for industrialization

The central bank loses its ability to collect seigniorage

Seigniorage- these are the profit gained from issuing coinage (the printing of monies costs less
than the actual value of the coinage). Instead, the U.S. Federal Reserve collects the seigniorage,
and the local government and gross domestic product (GDP) as a whole thus suffer a loss of
income. This results in inadequate income to support industrialization. However, operating
without a currency can be advantageous to an economy.

Prevents politicising of the monetary policy by Government

According to Huerta de Soto (2012), it is asserted that loss of influence over a currency
eliminates the possibility that the national government uses a discretionary monetary policy to

induce some artificial booms by credit expansion. The rational of Huerta de Sorto is that the
government cannot imprint fiat currency and resorting populist policies. The democratic
governments use monetary policy as a means to satisfy political interests without resorting to
harsh measures, such as increasing taxes

Leads to stronger monetary and fiscal discipline

Operating without a national currency enables the introduction of a stronger monetary and fiscal
discipline in a country that traditionally had populism and lack of seriousness over it monetary
policy in an effort to recover from budget deficits.

Protection against inflation

The adoption of a fiduciary currency normally leads to arbitrary transfer of wealth from countries
of low inflation to countries of high inflation by leverage on the competitiveness and stability of
the currency to make local product price competitive than imports as well as adoption a more
prudent monetary policy. For example, using the US dollar and Rand in Zimbabwe

Boosting investors confidence.

Creation of positive investor sentiment, almost extinguishing speculative attacks on the local
currency and the exchange rate. This then results is a more stable capital market and a balance of
payments that is less prone to crisis.

Reduced transaction costs between/ among trading parties.

Operating without a currency could make it easily to join a trading bloc of the country which has
issued the fiduciary currency. For example, since South Africa is Zimbabwes major trading
partner it is going to be easy to join the Common Monetary Area which as of 2010 comprised of

Namibia, South Africa, Swaziland and Lesotho. This will significant improve ability of
Zimbabwe to access South African capital and money markets and even be in a position to enter
in mutually beneficial bi-lateral agreements. In the system of floating exchange rates, the
continuous changes in exchange relations inhibit the trade, creating difficulties for exporters and
importers. It is imperative to note that growth in trade will lead to growth in competition, which
clearly results in increasing specialization and diversification of production, which can
again give rise to a different ability of trading countries to face up to economic changes.

Conclusion
In conclusion the presentation has both indicated both the adverse and positive impact of lack of
own currency towards industrialization and the economy as a whole. The writers further urge the
government to adopt its own currency so as to regain its own pride and have control over both its
monetary and fiscal policies which are critical ingredients in formulation of industrialization
strategy.