Gono Should Go Back to Basics

By Levi Mhaka

Published November 15, 2006

On 27th October 2006, the Zimbabwe Independent published my letter entitled "Dangers of Gono's Excessive Powers". In the letter, I highlighted the national risks that are imminent because of the RBZ Governor's unbridled and unconstrained powers. Its sister newspaper, the Standard, must be commended for its sterling job to expose what was potentially disastrous to maize production in Zimbabwe.

The latest issue on the procurement of fertilizer invites one to make a closer scrutiny by going back to basics because he has become a tetherless kite.

I saw the governor speak on ZTV news over the weekend and then read the State-owned newspapers and the governor's 24-page response to the fertilizer issue on the RBZ website. Instead of responding by providing a narration of the process, he went into an overdrive of denials, criminalizing the newspaper that published the stories and made expressions of arrogance.

The following questions still require answers:

1. What informed the decision to import instead of 'assisting' the 3 local companies (Windmill, ZFC and Sable Chemicals) to improve the production capacity by allocating them the much needed foreign currency? (The Herald 05/01/06 and 06/01/06)

2. Who made the decision to import 70 000 tonnes?

3. When and where was the tender floated?

4. How was the supplier chosen amongst other competitors?

5. At what point did the RBZ get involved and what did it do?

6. Why would the RBZ be alleged to be at the centre of the transaction if it only provided the foreign currency?

Going back to basics means refocusing on the role of a central bank and that of the finance, industry and other economic ministries in a shrinking economy.

The central bank is characterized as having three roles:

(1) the issuing bank;

(2) the banks' bank;

(3) the government's bank and

(4) to promote and maintain financial stability through the regulation and supervision of domestic banks, by assisting in the development and operation of an efficient payments mechanism, and by maintaining confidence in the currency.

According to the RBZ website "The purpose of the Reserve Bank Act is to confer and impose functions on the Reserve Bank of Zimbabwe; to provide for its management; to regulate the issue of banknotes and coins; to provide for matters connected with banking, currencies, and monetary policy; to provide for the supervision of banking institutions; to authorize the provision of information to foreign regulatory authorities; and to provide for matters connected with or incidental to those provisions."

The first role provides for the central bank to create a stable and stabilize the currency system by acting as the sole issuer and controller of the currency, and through this, to lay the foundation for sustainable economic development. This enables people to use money confidently.

To achieve a stable currency system, two requirements must be satisfied:

(a), the value of the currency must be stabilized, i.e, price stability must be maintained; and

(b), circulation of money and the functioning of the mechanisms through which monetary transactions are processed, i.e. the settlement and financial systems, must be stable and efficient. The central bank's two major objectives of maintaining price stability and ensuring financial system stability.

The mission of the central bank, therefore, is to fulfill these two requirements in order to preserve the soundness of the currency, and to thereby provide a solid foundation for sustainable economic growth and for an improved standard of living.

To achieve price stability, it manages the monetary aggregates in the economy and interest rates. This is the essence of monetary policy.

Is the Zimbabwe currency system stable and are people using the currency confidently? The answer is NO to both questions. There is so much flip flop in the monetary system. Inflation is galloping! Our currency has become very useless (mamvemve) since Gideon Gono took over the governor. On a quarterly basis, he has has been doing exactly what made Simba Makoni lose his job as the Finance Minister.

These functions constitute the bulk of the Bank’s activities, and they involve the licensing of commercial banks and other deposit-taking institutions, continuous monitoring of their solvency and liquidity, daily processing of cheques and other means of payment used in the hundreds of thousands of financial transactions that occur each day, and designing, printing and minting as well as distributing good quality bank notes and coin to the public.

Coming back to the fertilizer issue, when the governor justifies the actions that belong to the fiscal domain in the name of saving a house that is on fire, he means he is far much better to work as the combined minister of finance, industry and agriculture. He is charging the State President (the CEO) for managerial incompetence, negligence and failure to supervise his ministers (operational managers) that are at the centre of economic interventions - Herbert Murerwa, Obert Mpofu and Joseph Made.

This is the first country to have a central bank governor whose activities overlap with those of the key economic ministries, never mind that he either informs them or not before he releases such statements. Probably it is because he is not a central nor ordinary banker by profession. He only studied nominal economics as a subject when he was doing CIS!

After feeling provoked by the Standard, he expressed views on ZTV news that he is against monopolies and oligopolies. The RBZ's involvement in the importation of fertilizer distorts the local businessess' competitiveness and viability.

Furthermore, how does he account for State-owned monopolies and oligopolies that are so inefficiently run that he has been pouring money?