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South Africa begs Zimbabwe to adopt the Rand

by Peter Fabricius/IOL
10 July 2016 | 4694 Views
Johannesburg - South Africa is holding quiet talks with Zimbabwe to try to persuade it to adopt the rand as its official currency, as the only way out of its growing economic and political crisis.

The crisis has been sparked by Zimbabwe's dire shortages of US dollars which it chose as its chief currency after its own Zimbabwean dollar collapsed seven years ago amid runaway inflation.

Saving scarce US dollars appears to have been the real motive for Zimbabwe's decision to ban imports of several products from South Africa two weeks ago. That sparked violence at the Beitbridge border post as Zimbabwe's growing army of informal importers lost their business.

The lack of dollars also provoked a national stayaway and unrest in Zimbabwe this week as the government was unable to pay civil servants. Official sources said both Zimbabwe's reserve bank governor John Mangudya and Finance Minister Patrick Chinamasa have recently made clear that joining the common monetary area (CMA) is the only solution to Zimbabwe's mounting economic problems.

"All that is required now is a political decision at the highest level," one said. They acknowledged this could be difficult because of national pride. The general feeling is that President Robert Mugabe has so far resisted a switch to the rand as this would effectively cede Zimbabwe's financial authority to South Africa. But he may be running out of options as the dire economic crisis is triggering a political upheaval which might threaten his hold on power.

The common monetary area links Namibia, Lesotho, and Swaziland to the rand in a de facto monetary union. Though their currencies have different names, they are all pegged to the rand and so essentially fall under the SA Reserve Bank's monetary policy direction.

This has helped maintain financial and therefore also economic stability in these small countries – but at the expense of considerable financial autonomy. Officials said South Africa offered Zimbabwe membership of the CMA when the Zimbabwe dollar collapsed in 2009 but Zimbabwe chose instead to use several currencies, including the US dollar, the rand, and the Botswana pula.

However, ordinary Zimbabweans increasingly resorted to the stronger dollar because of the fall in the value of the rand. Official sources said that policy had now been demonstrated to have failed. And Zimbabwe could not print its own money again as this would have no credibility now with ordinary Zimbabweans.

They said switching to the rand would boost Zimbabwe's exports as the US dollar made its exports too expensive on international markets. This could revive Zimbabwe's flagging manufacturing sector. The sources said that if Zimbabwe switched to the rand, Pretoria would encourage its state-owned enterprises already in the country, such as the Development Bank of Southern Africa, the Industrial Development Corporation, and the Public Investment Corporation, to inject more money into the Zimbabwean economy.

This would be easier for them to do in rands than in US dollars.

Pretoria believes the current unrest in Zimbabwe is not yet presenting a threat to the survival of the Mugabe regime. But they acknowledged that for the first time the Zimbabwean people are standing up to their government en masse. Many Zimbabweans have told journalists they have at last found the courage to do so because they are desperate and have nothing left to lose.

But, South African officials insist they are not trying to prop up the Mugabe and Zanu-PF regime.

"It is in South Africa's strategic interests to help Zimbabwe to recover economically so it can contribute to the economic integration of the Southern African region," one said.

South Africa Rand US Dollar

Source: IOL


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