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As long as we have an unresolved issue of currency, Zimbabwe production remains in doldrums

To be sure, production is a function of a credible, trustworthy and reliable currency.

 

By Colls Ndlovu

 

According to the originator of the theory of conventional wisdom, John Kenneth Galbraith, formally of Harvard University, conventional wisdom is almost always wrong and misconceived.

True to form, there is this fallacious conventional wisdom in Zimbabwe that production is what is necessary before you have a strong and credible currency.

This is a fatalistic view because the exact opposite of it is the truth. You need a strong and credible currency that people have faith and confidence in first, then production follows thereafter.

The value of a currency has nothing to do with production and such value is not dependent on production. A currency has its own independent absolute value.

Rather production is the one which is dependent on the presence of a strong, stable and credible currency that enjoys people’s confidence.

Why do you think the Bitcoin carries such a huge value? There is no production of whatsoever nature that is associated with the Bitcoin.

The Bitcoin merely derives its value from the confidence and trust it receives from ordinary folks out there. Backed by some opaque and complex algorithms and passwords, the Bitcoin is the currently the strongest currency in the world yet there is zero production associated with it.

A credible currency

To be sure, production is a function of a credible, trustworthy and reliable currency.

The credibility and the reasonably sound footing of the a country’s currency are the key factors that determine whether production is triggered or not.

This conventional that has strong roots in Zimbabwe that production is a pre-conditionality for economic revival borders more on fallacy than reality.

This view unfortunately misses the point altogether. Zimbabweans do not seem to understand that production is a function of a stable and credible currency.

So long as there is no stable and credible currency that is trusted by the market (consumers, buyers and sellers), there just won’t be much production beyond the current tardy and skimpy production levels.

It needs to be repeated for the umpteenth time that production is a function of a steady, stable and credible currency.

In other words you need to have a stable currency like the US$ or Rand in place before day-dreaming about production. The as-yet unresolved currency question in Zimbabwe is what causes production to be so sluggish on the one hand and it also causes people to shun formal banking on the other hand.

Hitherto, the bond note tended to distort currency valuations thus causing people to shun formal banking.

In the mid-2000s up to the peak of 2008 the Zim$ was savaged by hyperinflation of about 87.9 sextillion% (about 879 000 000 000 000 000 000%) and this horrendous hyperinflation was accompanied by near absolute zero production (shops were completely empty).

Interegnum

The reason why production decreased to absolute zero is because the currency was suffocating under a back-breaking hyperinflation rate highlighted above.

The situation stabilised during the – interegnum – period from 29 January 2009 to about 2016.

Since then the country saw the introduction of a ghost currency called the bond note valued at a pari passu level of 1:1 to the US$.

The markets lost all confidence in that currency because they could see through the veil that it was the Zim$ in disguise.

Some analysts argued that the Bond note was indeed the old Zim$ which had mutated and camouflaged itself as a new currency.

For production to occur at optimal levels, the currency needs to be strong, credible, and trustworthy in the eyes of the markets.

The Zim economy needs a robust, convertible and trustworthy currency in order to resurrect from its self-inflicted financial suicide.

By way of an example, teachers and doctors won’t be productive (produce quality students and cured patients, respectively) so long as they are not paid in a stable, credible and trusted currency.

The same applies to Delta. It won’t produce quality products at optimal levels so long as it’s products are not bought by consumers using a credible and trustworthy currency.

 

Colls Ndlovu, a currency expert, is an award-winning economist and central banker, and is the originator and developer of the NCX Index.

 

 

The news is in the misbehaviour of financial markets

 

 

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