The Zimbabwean dollar keeps losing value with each passing day-even the willing buyer willing seller rate keeps rising. This week the government unveiled what looks like a foolproof solution to this problem-gold coins. The idea here is simple, Zimbabweans who want to preserve the value of their ZWL earnings can buy gold coins through banks as a form of investment. This is because unlike the Zimbabwean Dollar gold prices have remained relatively stable around the world. Not only do these gold coins have intrinsic value they are also made of pure gold, so in theory, you can always sell the coin for the gold and get your money back.
It is not as foolproof as it sounds
The reason why people have a bit more confidence in the coin compared to the ZWL is that they figure the Zimbabwean government will not be able to mint so many coins. These coins are made up of pure gold, gold is limited in supply and so the Zimbabwean government can only make so many coins in any given period of time. That ought to put a cap on wanton coin minting and preserve the market value of the coins as they will be in limited supply. As already hinted on, even if the government were to make so many of them you could always sell the coins for the gold in them and get your money back. That sounds like a perfect solution until you consider two things.
The first is the reason why we are here. The reason why the Zimbabwean dollar keeps losing value. The reason why the Zimbabwean dollar even exists in the so-called second republic in the first place. That reason is government deceit. The government has been electronically printing Zimbabwean dollars since around 2013 when they really came into power. The second republic just continued printing in 2017 and from 2018. This printing has not been matched by an increase in production and according to the laws of economics that leads to money losing value because you have more and more money chasing an unchanged quantity of goods and services.
Instead of owning up to this. The government has sought to blame anything and everyone else for causing the problem. They have invented and blamed economic hitmen, saboteurs, unscrupulous businesses and even money changers when in reality it is entirely the government’s own fault. All these people are simply exploiting conditions which wouldn’t exist had the government not recklessly printed money in the form of electronic dollars. This is the reason why the rate keeps rising even though various organisations have been targeted. The printing of money has not stopped at all. Most of this money is going towards road rehabilitation and various construction projects.
The second thing to consider is that systems are only as good as the people implementing them. It takes more than a book of knowledge to make turn an ordinary person into a good neurosurgeon for example. You can take two people given them all the knowledge of neurology and one could still turn out to be a better doctor than the other. For some unfathomable reason, a lot of Zimbabweans seem to think that they can design a foolproof system that cannot be thwarted. A system that will somehow force the government of Zimbabwe to behave legally and ethically especially when it comes to managing the economy. For some people that system is dollarisation, for some, it is joining the Rand Monetary Union and for others, it is a constitution that will force the government to do the right thing all the time and not wreck our economy.
Well, if you are one of those people I have some disappointing news for you. There is no such system. Neither gold coins nor dollarisation will solve this problem. This is because experience and my learning have taught me that any system can be easily circumvented if the people charged with protecting that system decide to collude. Collusion is what has allowed the Zimbabwean economy to get to the position where it is right now. The RBZ Governor, the Finance Minister, the judiciary, the police and the executive have formed an unholy union that does as it pleases. That is how I know dollarisation will not work.
If you still are not convinced here is some empirical evidence to prove the futility of it all to you. We have already had dollarisation before. The multicurrency system we adopted back in 2009 under the GNU was a de facto dollarisation. That system worked well during the GNU days until in 2013 when we had elections that dissolved the GNU. The new government decided to be naughty and introduced the RTGS dollar by hijacking the RTGS transfer system. Not long after this the RTGS balance had risen to about 9 or so billion. The government was still trying to pass this as USD and not RTGS. They then introduced bond coins which were in essence a physical expression of that RTGS balance build-up. Then they ordered the separation of RTGS and “Nostro” accounts. Next, they foisted the ZWL dollar on us and have been trying to fix the ZWL: USD rate ever since and each time their official rate has been suspiciously lower than the market-based rate.
Lessons from ancient Rome
You might be thinking gold coins are a foolproof solution. At first glance, they appear to be. I mean how are they going to circumvent that? The answer lies in ancient Rome. Like the RBZ, Romans had silver and gold coins that they used as a currency. Like the Zimbabwean government, Rome had a lot of infrastructure programmes that needed funding and as the empire grew those projects started to cost more than the Roman Empire could muster through taxes and trade. Clever government officials realised that you do not need pure gold to make gold coins. They started by adding about 10% bronze to the coins and just like that they had made 10% more money. Tempted by the lure of easy money that ratio continued to rise until in the end, it was about 90% bronze and 10% gold.
That chicanery did not go unnoticed. Common citizens were wise to the attempted deceit. They quickly started discounting the coins based on the amount of gold they contained. Prices of goods rose because there was suddenly more money than their goods. The rise in money supply was not matched by an increase in trade or production. That was the first recorded instance of hyperinflation and it led to the eventual total collapse of the Roman Empire because those naughty emperors and their charges kept diluting the gold.
Surely that would never happen in Zimbabwe I hear you say. Why not. As we have demonstrated the government has already engaged in mass deceit and shameless printing a couple of times before. We have also pointed out that like the emperors of old, our leaders seem to have the absolute economic power to do as they please. They can pass a Statutory Instrument on a whim. They certainly can control how many gold coins into their little fancy coins. They have also demonstrated that going back on their word is not a problem. Do you remember the days when the governor said he would resign when bond coins failed? Or that time when the government said they would not reintroduce the Zimbabwean dollar? They have broken so many promises you can almost expect it to be certain that at some point those pure gold coins will be pure anything but gold.
The sum of it all
The Zimbabwean problem stems from the fact that we have people in charge of our economy who have no qualms when it comes to resorting to trickery to get what they want. They have done it before and are willing to collude to get where they want to go. No system is going to ever stop that especially since you can always assume that those tasked with making sure the system is not defeated can always be expected to collude. That is an age-old lesson from the ruins of ancient Rome.