Escolar Documentos
Profissional Documentos
Cultura Documentos
G l o b a l d i a l o g u e August 2008 • 23
S o u t h e r n A f r i ca
they believe that in the run-up to the Hyperinflation isn’t the only thing pro- behind in reporting even the most stand-
March elections and the June presidential duced by the RBZ. It is also a proficient ard economic and financial statistics.
runoff the government forced the RBZ to producer of jobs, funded at the expense The most rapid and reliable way to
accelerate the printing presses. of every Zimbabwean who uses money. stop hyperinflation in Zimbabwe is to
The root cause of the hyperinflation is In the 2001–2007 period, the RBZ’s staff replace central banking with a new
government policies that have forced the more than doubled, from 618 to 1 360 monetary regime. That would signal a
RBZ to print money. From January 2005 employees. The RBZ’s staff increase of clean break with the practices that have
to May 2007, the RBZ issued currency at a 120% was the largest of any central bank created hyperinflation and would give
rate that even exceeded that of Germany’s in the world during this period. Despite Zimbabweans reliable assurance that
central bank from January 1921 to May the increase, one thing the staff is not inflation will henceforth be controlled.
1923, the ramp-up phase of the great producing is accurate and timely data. Some may wonder whether it is nec-
German hyperinflation (Figure 2). The RBZ has fallen months, if not years, essary to replace central banking with
another monetary system in Zimbabwe.
After all, other countries with inflation in
Figure 1: German & Zimbabwean exchange rates the hundreds or thousands of percent a
year – including Angola, Mozambique, the
1 000 000 000 000 000 Democratic Republic of the Congo, and
Zambia – have checked high inflations
ZWD and Marks per USD (logarithmic scale)
Sources: Thomas J Sargent, Rational Expectations and Inflation, 2nd edition (New York: Replace central bank
Harper Collins College Publishers, 1993); 01 May 2008, Imara Asset Management
Zimbabwe; and author’s calculations. Central banks can put a stop to infla-
Note: A logarithmic scale is used so that the chart can fit on one page. tion as fast as they can fuel it. All they
have to do is stop the printing presses.
Figure 2: German & Zimbabwean currency in circulation Unfortunately, they can switch course
with ease. So, under central banking,
1 000 000 000 000 000
inflation can return as easily as it was
snuffed out. Many countries, including
the African countries mentioned above,
1 000 000 000 000
Percent growth (logarithmic scale)
24 • August 2008 G l o b a l d i a l o g u e
Zimbabwe and the dramatic hyperinfla-
tion, the only way for Zimbabwe to make
a credible commitment to stop the hyper-
inflation rapidly and avoid high transition
costs is to replace central banking with a
different type of monetary regime.
Three options exist for quickly replac-
ing the RBZ, ending hyperinflation, and
providing monetary stability:
• official ‘dollarisation’,
• free banking, and
• a currency board.
These options are not mutually exclu-
sive. For example, a currency board sys-
tem could be combined with official
dollarisation, as in the monetary systems
of Lesotho, Namibia, and Swaziland.
A fourth option – formal membership
in the South African rand’s Common
Monetary Area – is not dealt with
explicitly here simply because it would
probably involve protracted political
negotiations and time, which Zimbabwe
can ill afford. A man carries piles of devalued local banknotes while shopping for
groceries in the Zimbabwean capital of Harare.
Dollarisation, free banking or a AP Photo/Tsvangirayi Mukwazhi
currency board
issuing currency, according to estimates restricted that ever existed. Reflecting the
Dollarisation occurs when residents of of how many rand notes and coins are limited use of modern money and credit
a country extensively use the US dollar in circulation in the partner country. In among the population at the time, the
or another foreign currency alongside, the late 1920s, when Zimbabwe (then country had only two commercial banks,
or instead of, the domestic currency. called Southern Rhodesia) used South the Standard Bank of South Africa and
Unofficial dollarisation occurs when African coins, it apparently had such a the Bank of Africa (later part of Barclays
individuals hold foreign-currency bank profit-sharing arrangement with SA. The Bank). They issued notes denominated in
deposits or notes (paper money) to pro- agreement applied to coins in circula- pounds, and kept their privately issued
tect against high inflation in the domestic tion alone, since Zimbabwe had its own pounds equal to the pound sterling –
currency. Zimbabwe is already unofficially notes. except during the First World War and
dollarised to the extent that Zimbabweans The notes were issued under ‘free for a few years afterwards, when the
hold SA rand, US dollars, pounds sterling, banking’, a system of competitive issuance local pound floated along with the South
and other foreign currencies as stores of by private commercial banks of notes and African pound (the predecessor to the
value. Official dollarisation occurs when other liabilities with minimal regulation. rand) against the pound sterling. Free
a country uses a foreign currency as the A completely free banking system has banking ended in Southern Rhodesia not
main, or only, component of the mon- no central bank, no lender of last resort, because it performed poorly, but because
etary base. (The monetary base is the no reserve requirements, and no legal the government desired the profits from
medium accepted for final settlement of restrictions on bank portfolios, interest issuing notes.
payments in the local financial system; rates, or branch banking. Free banking Currency boards or central banks
in other words, it is what banks typically systems existed in nearly 60 countries replaced free banking systems because
use for clearing.) during the 1800s and early 1900s. In gen- intellectual and political fashions favoured
For Zimbabwe, official dollarisation eral, these systems were relatively stable, monopolising the issuance of notes and
could, for example, take the form of using issued currencies convertible into gold or coins by a government body. Today, no
the SA rand, US dollar, or the euro. If silver at fixed exchange rates, and were free banking systems exist. In the last
Zimbabwe used the rand, it could nego- not purveyors of inflation. 30 years, economists’ interest in free
tiate a profit-sharing agreement, such Zimbabwe had free banking from the banking has revived because of dissatis-
as Lesotho and Namibia now have, and time its first bank was established in 1892 faction with the performance of central
which Botswana and Swaziland formerly until the government replaced free bank- banks. More recently, the possibility that
had. Under the agreement, SA shares ing with a currency board in 1940. That
the profit (seigniorage) it derives from free banking system was among the least Continued on page 35
G l o b a l d i a l o g u e August 2008 • 25
countries, that peg their currencies to SA is likely to be severely affected by growth to offset the impact of the likely
the dollar. a global recession because of the coun- global recession. n
The global credit crunch and weaker try’s high level of integration into global
trade will take its toll on global economic trade and financial markets, the high Seeraj Mohamed is director of the
growth. The overall impact will be falls trade deficit and the recent unsustain- Corporate Strategy and Industrial
in demand, less trade, lower investment able consumption growth. The Southern Development Research Project in the School
rates, and lower economic growth rates. African region will in turn be affected, of Economic and Business Sciences at the
Therefore, even the growing Asian econo- with countries dependent on remittances University of the Witwatersrand. He also
mies, such as China, Vietnam, and Singapore, and aid being hardest hit. Those export- teaches economics at Wits. The usual
face declines in economic growth. ing mining commodities might have some disclaimers apply.
in AU circles. This reflects a tendency of been painfully slow, if not static. Moreover, it is all-inclusive, the APRM may not be
African leaders and other stakeholders while the APRM process is an integral so amenable because of its selective
to give prominence to new processes at part of NEPAD and should constitute a and discretionary character. Caution is
the expense of older ones, which creates component of the NEPAD-AU integration needed. n
inter-institutional rivalry – thereby dissi- agenda, it cannot be treated entirely the
pating energies and resources required same as NEPAD. While NEPAD might Dr Francis Nguendi Ikome is director of the
for the continent’s development. be readily amenable to integration into IGD’s multilateral analysis programme.
Integrating NEPAD into the AU has AU processes because, like the union,
that have an impact on people’s lives, the region to review their migration poli- Governments were also requested to
especially those of the poor. cies. Migration between countries is natu- learn from each other, especially in rela-
Regional integration in its present ral as people’s needs change and they tion to disaster management practices.
form, which favours economic and politi- search for new spaces where their needs In addition to the political and economic
cal co-operation at the leadership and are best met. Hence it should be facili- integration that SADC hopes to achieve,
business levels, does not address the tated, monitored and de-pathologised, it should also ensure that the region’s
needs of the majority of the region’s citi- especially in regions that wish to share people are involved in decision-making
zens. What is needed is development that economies and trans-national policies, processes that affect their lives, more
takes place throughout the region in rural and view themselves as trans-border com- especially the lives of people who live
and urban areas and that reduces the munities. SADC’s Free Trade Area will in poverty. n
imperative for people to move from their facilitate the movement of goods and
home country to neighbouring countries services across borders in the region. Dr Michele Ruiters is a senior researcher at
for work over long periods of time. Hopefully it will also highlight the need IGD.
The meeting agreed that pressure to support the legal movement of people
should be exerted on governments in across borders.
electronic money will make notes and accepted deposits, the board proposed assets payable in the reserve currency. A
coins obsolete, enabling banks to offer for Zimbabwe would be prohibited from currency board holds reserves equal to
full-fledged rivals to government-issued doing so. A currency board’s monetary 100% or slightly more of its notes and
currencies, has generated considerable liabilities are fully backed by a foreign coins in circulation, as set by law.
interest. reserve currency, also called the anchor The Southern Rhodesia Currency
The final option for quickly replacing currency, and are freely convertible into Board was established in 1940. The
the RBZ is a currency board. Currency the reserve currency at a fixed rate on board replaced free banking, a system
boards have existed in more than 70 demand. The reserve currency is a con- that had experienced no severe prob-
countries and a number are in operation vertible foreign currency or a commod- lems and had served the country well.
today. A currency board is a monetary ity chosen for its expected stability. As In establishing the currency board, the
institution that issues notes and coins. reserves, a currency board holds low- colonial government was acting in accord
Even though some currency boards have risk, interest-earning securities and other with the prevailing belief of the time
G l o b a l d i a l o g u e August 2008 • 35
Global Dialogue is published by the
that issuing notes and coins should be are worth pondering, it must be stressed Institute for Global Dialogue
a government monopoly. Officials were that any one would represent an enor- IGD House, Block 12
also aware that a currency board would mous improvement over the monetary Thornhill Office Park
generate profits and, therefore, revenue policy that the government has forced the Bekker Street
for the government. RBZ to produce or that the RBZ is likely Vorna Valley, Midrand
The notes and coins of the Southern to produce in the near future. South Africa
Rhodesia Currency Board were also
legal tender in Zambia (then called Financial liberalisation P O Box 32571, Braamfontein 2017
Northern Rhodesia) and Malawi (then
called Nyasaland). The board existed until Financial liberalisation is a vital compan- Executive director
1954, when it was replaced by the Central ion policy to dollarisation, free bank- Dr Garth le Pere
Africa Currency Board. The main feature ing, or a currency board system. With
distinguishing the Central Africa board the elimination of hyperinflation, the Multilateral analysis
from its predecessor was that it allowed rationale for price controls and foreign Director: Dr Francis Ikome
representation on its governing body exchange controls no longer exists. Both Senior researchers: Dr Michele
by Zambians and Malawians as well as should be prohibited. Other forms of Ruiters, Dr Brendan Vickers, Michelle
Zimbabweans. ‘financial repression’, including inter- Pressend
The three governments of the est rate ceilings, the forced purchase of Researcher: Dr Lesley Masters
Federation of Rhodesia and Nyasaland government bonds, minimum reserve
then transformed the Central Africa requirements for financial institutions, Africa research
Currency Board into the Bank of Rhodesia and the compulsory allocation of credit to Director: Dr Siphamandla Zondi
and Nyasaland, a central bank, in 1956. favoured borrowers should also be pro- Researchers: Dimpho Motsamai,
The central bank was one of several hibited. This liberalisation would allow Emmanuel Kisiangani
institutions intended to bind Zimbabwe, for the free flow of capital in and out of
Zambia and Malawi into a single eco- Zimbabwe. It would also increase the Research associate
nomic unit and ultimately perhaps a sin- return on savings and reduce the cost Dr Lyal White
gle political unit. As with the transition of capital in Zimbabwe, removing major
from free banking to a currency board, impediments to economic growth and Finance and administration
the transition from a currency board to improved living standards. Such has been Director: Pieter Du Preez
a central bank did not occur because the experience of other countries that Manager: Cynthia Sinclair
the currency board had experienced any have ended financial repression.
severe problems. Rather, central banking Financial liberalisation is of critical Executive assistant
had become the intellectual fashion of the importance for Zimbabwe’s economic Nomfundo Tshabalala
time for countries that were independent recovery. Depreciation of assets has
or wanted to become independent soon. exceeded investment for some time, Administrative assistant
There was as yet little recognition of the resulting in capital consumption and Penelope Masenamela
dangers that inept central banking could the atrophy of the nation’s plants and
bring: high inflation, exchange controls, equipment. In addition, the combination Tel (011) 315 1299
and financial underdevelopment. of hyperinflation and price controls has Fax (011) 315 1249
When the federation dissolved in 1964, wiped out much of the country’s stock e-mail: info@igd.org.za
its central bank was divided into three of working capital. The quickest way to www.igd.org.za
separate central banks for each country replenish Zimbabwe’s capital stock is to
that had been a member of the federa- import capital. To accomplish this, stable IsSn: 1560-8743
tion. Thus the Reserve Bank of Rhodesia money and a liberal financial regime are
came into being. important prerequisites. n All rights reserved. The material in this
Official dollarisation, free banking, publication may not be reproduced, stored or
transmitted without the prior permission of the
and a currency board are all proven sys- Steve H Hanke is a professor of applied copyright holder. Short extracts may be
tems with records of success in provid- economics at Johns Hopkins University quoted, provided the source is fully
ing reliable, low-inflation currencies in in Baltimore, a senior fellow at the Cato acknowledged.
Zimbabwe and elsewhere. Any one of Institute in Washington, DC, and a columnist Photographs supplied by The Bigger Picture
these systems, or a combination of them, at Forbes magazine. A version of this and PictureNET Africa
36 • August 2008 G l o b a l d i a l o g u e