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Wednesday, 27 February 2019

Zimbabwe’s currency floatation labeled ‘voodoo economics’

Currency reforms being undertaken by Zimbabwe’s central bank have been labeled “voodoo economics” by the country’s former finance minister, according to the FT. The central bank on Monday unpegged the RTGS (a newly-created currency made up of bond notes and electronic ZWD) from the USD, allowing banks to trade it at market rates instead of USD-parity. But former Finance Minister Tendai Biti predicted that the currency floatation is doomed to fail. “It is disaster, it is grand theft, it is voodoo economics,” he told the FT. “There is no market confidence and there are no reserves.”

Fiscal reforms are also needed: The central bank hopes that removing the peg will address the severe cash shortage the country has faced since President Emmerson Mnangagwa’s 2017 coup against Robert Mugabe. But Biti insists that without fiscal reforms trust in the currency cannot be restored. “The fundamentals are not there,” he said.

But not everyone is calling voodoo: Despite Biti’s gloomy prognosis the floatation has its supporters, who believe that it is the first step for the country to regain a stable currency. “We have a long way to go, but I believe this is a good start,” Zimbabwean economist John Robertson said. “Prices should gradually stabilize and allow businesses to start planning more effectively.”

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