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HARARE, December 8, 2008 -
Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono, will on Monday launch a book chronicling his experiences as governor of the Reserve Bank of Zimbawe as the nation battles a debilitating the economic crisis.RBZ Governor Gideon GonoGono, who was last week given a new five year term at the helm of the RBZ, is scheduled to launch the book at the Rainbow Towers on December 8.The book is entitled "Zimbabwe's Casino Economy" and is being promoted by the Zimbabwe Publishing House (ZPH).Invitations have been sent to media houses and journalists.The opposition Movement for Democratic Change (MDC) has protested against the re-appointment ofGono as the RBZ governor, blaming him for the current economic meltdown, especially the excessive printing of money.Gono presides over the world highest inflation ravaged economy, officially estimated at 231 million percent.
Tuesday, December 9, 2008
Dollar crashes as government buys support from armed forces
http://www.swradioafrica.com
By Alex Bell
08 December 2008Days after Zimbabwe's soldiers caused havoc in Harare last week over not being able to access their money from the city's banks, the government on Friday forked out millions of dollars to pacify its armed forces - partly causing a spectacular crash of the local currency over the weekend.A large group of disgruntled soldiers went on a rampage in the capital a week ago, attacking foreign currency dealers, traders, breaking windows and looting shops. The attack, which saw the uniformed group clash with military police officers, led to the arrest of at least 16 soldiers.But by the end of the week, the government moved in to pacify the growing unrest among its once dependable and loyal group of uniformed thugs, and paid out cash sums to both soldiers and police officials - with police members each receiving Z$100 million and soldiers receiving half of that.The government's reckless spending to keep its security forces in check and keep itself in their favour came at the same time that cash withdrawal limits were increased from Z$500 000 a day to Z$100 million per week, on Thursday. At the same time, new bank notes were once again introduced into the market on Friday as part of the Reserve Bank's absurd method of dealing with runaway hyperinflation.The combined weight on the local economy this weekend saw the dollar crash to record lows, with the currency reportedly halving in value every five to ten minutes on Friday. The spectacular crash sent the prices of basic foodstuff rocketing upwards - to the point that the new weekly withdrawal limit will only buy three loaves of bread at the new value of Z$35 million per loaf.Independent economic analyst, John Robertson explained on Monday that the local dollar's rapid fall was the direct result of last week's 'improved access to cash'. He described that by Friday, the day after the withdrawal limits increased, the dollar was trading at Z$10 million to US$1. Robertson added that while the prices of goods in foreign currency are unlikely to shift much given the stability of the US dollar, he said the skyrocketing prices of goods in local currency was expected - if you can find a shop that will sell to you in local money.
By Alex Bell
08 December 2008Days after Zimbabwe's soldiers caused havoc in Harare last week over not being able to access their money from the city's banks, the government on Friday forked out millions of dollars to pacify its armed forces - partly causing a spectacular crash of the local currency over the weekend.A large group of disgruntled soldiers went on a rampage in the capital a week ago, attacking foreign currency dealers, traders, breaking windows and looting shops. The attack, which saw the uniformed group clash with military police officers, led to the arrest of at least 16 soldiers.But by the end of the week, the government moved in to pacify the growing unrest among its once dependable and loyal group of uniformed thugs, and paid out cash sums to both soldiers and police officials - with police members each receiving Z$100 million and soldiers receiving half of that.The government's reckless spending to keep its security forces in check and keep itself in their favour came at the same time that cash withdrawal limits were increased from Z$500 000 a day to Z$100 million per week, on Thursday. At the same time, new bank notes were once again introduced into the market on Friday as part of the Reserve Bank's absurd method of dealing with runaway hyperinflation.The combined weight on the local economy this weekend saw the dollar crash to record lows, with the currency reportedly halving in value every five to ten minutes on Friday. The spectacular crash sent the prices of basic foodstuff rocketing upwards - to the point that the new weekly withdrawal limit will only buy three loaves of bread at the new value of Z$35 million per loaf.Independent economic analyst, John Robertson explained on Monday that the local dollar's rapid fall was the direct result of last week's 'improved access to cash'. He described that by Friday, the day after the withdrawal limits increased, the dollar was trading at Z$10 million to US$1. Robertson added that while the prices of goods in foreign currency are unlikely to shift much given the stability of the US dollar, he said the skyrocketing prices of goods in local currency was expected - if you can find a shop that will sell to you in local money.
Thursday, December 4, 2008
Pictures Of Zimbabwe’s Inflation Crisis
By Luke Burgess on December 4, 2008
Hyperinflation has Zimbabwe in the throes of a financial crisis that makes the one we’re dealing with look like a walk in the park.
The monthly inflation rate in Zimbabwe is currently running at 13.2 billion per cent, and could reach an all-time world record within weeks.
The latest figures put Zimbabwe’s annual inflation rate at 516 quintillion per cent. That’s 516 followed by 18 zeros.
Consumer prices on everything from gasoline to glue are doubling on average every 1.3 days.
Zimbabwe’s inflation crisis is now the second worst inflation spike in history, behind the hyperinflationary crisis of Hungary in 1946, in which prices doubled every 15.6 hours.
In September 2007, the exchange rate between the U.S. dollar and the Zimbabwe dollar was USD1 to ZWD253. The current exchange rate between the U.S. dollar and the Zimbabwe dollar is USD1 to ZWD60,623. This is a 23,861% increase since then.
Hyperinflation has Zimbabwe in the throes of a financial crisis that makes the one we’re dealing with look like a walk in the park.
The monthly inflation rate in Zimbabwe is currently running at 13.2 billion per cent, and could reach an all-time world record within weeks.
The latest figures put Zimbabwe’s annual inflation rate at 516 quintillion per cent. That’s 516 followed by 18 zeros.
Consumer prices on everything from gasoline to glue are doubling on average every 1.3 days.
Zimbabwe’s inflation crisis is now the second worst inflation spike in history, behind the hyperinflationary crisis of Hungary in 1946, in which prices doubled every 15.6 hours.
In September 2007, the exchange rate between the U.S. dollar and the Zimbabwe dollar was USD1 to ZWD253. The current exchange rate between the U.S. dollar and the Zimbabwe dollar is USD1 to ZWD60,623. This is a 23,861% increase since then.
Tuesday, December 2, 2008
Exchange rates
From John Robertson
With regret, but not much surprise, I am finding that the exchange rate numbers are becoming less convincing and more erratic. Disruptions caused by Dr Gono's misplaced attacks on the banks and the stock exchange might take time to settle, but other events are overtaking even the basics of finding money. Water supplies have dried up everywhere in Harare and factories are forced to send staff home. Some hotels, many schools and most of the city centre high rise buildings have become unsafe places to work and demonstrations are said to be in an advanced stage of planning. Cash allowances from the banks are being stepped up appreciably and will hopefully permit the currency to regain at least a little functional value, but inflation seems certain to make that a temporary benefit at best.
With regret, but not much surprise, I am finding that the exchange rate numbers are becoming less convincing and more erratic. Disruptions caused by Dr Gono's misplaced attacks on the banks and the stock exchange might take time to settle, but other events are overtaking even the basics of finding money. Water supplies have dried up everywhere in Harare and factories are forced to send staff home. Some hotels, many schools and most of the city centre high rise buildings have become unsafe places to work and demonstrations are said to be in an advanced stage of planning. Cash allowances from the banks are being stepped up appreciably and will hopefully permit the currency to regain at least a little functional value, but inflation seems certain to make that a temporary benefit at best.
Zimbabwe: When Even the Central Bank Can't Keep Up
From http://www.portfolio.com/views/blogs/market-movers/2008/12/01/zimbabwe-when-even-the-central-bank-cant-keep-up?tid=true
The Reserve Bank of Zimbabwe reports:
Between the 10th and the 20th of November, 2008, total fraudulent cheques we intercepted in the clearing system had risen to $60 hexillion ($60,000,000,000,000,000,000,000).
Someone really ought to tell Zimbabwe's central bankers that there's no such thing as a hexillion. They might as well say that they've intercepted sixty gajillion dollars' worth of checks.
The word they're looking for is sextillion, as they'd know if they only read this blog. On the other hand, the number of times that someone has helpfully written out a number first in words and then in bracketed numerals has now increased to one (1) from the prior zero (0).
The Reserve Bank of Zimbabwe reports:
Between the 10th and the 20th of November, 2008, total fraudulent cheques we intercepted in the clearing system had risen to $60 hexillion ($60,000,000,000,000,000,000,000).
Someone really ought to tell Zimbabwe's central bankers that there's no such thing as a hexillion. They might as well say that they've intercepted sixty gajillion dollars' worth of checks.
The word they're looking for is sextillion, as they'd know if they only read this blog. On the other hand, the number of times that someone has helpfully written out a number first in words and then in bracketed numerals has now increased to one (1) from the prior zero (0).
Monday, December 1, 2008
Report from Jonh Robertson
With regret, but not much surprise, I am finding that the exchange rate numbers are becoming less convincing and more erratic. Disruptions caused by Dr Gono's misplaced attacks on the banks and the stock exchange might take time to settle, but other events are overtaking even the basics of finding money. Water supplies have dried up everywhere in Harare and factories are forced to send staff home. Some hotels, many schools and most of the city centre high rise buildings have become unsafe places to work and demonstrations are said to be in an advanced stage of planning. Cash allowances from the banks are being stepped up appreciably and will hopefully permit the currency to regain at least a little functional value, but inflation seems certain to make that a temporary benefit at best.
However, I hope that the attached exchange rate table will help you to keep track of the recent changes. The visible parallel market is barely functioning, but the heightened uncertainties appear to have prompted increased caution among dealers who are still handling requests. However, all the signs suggest a greatly reduced level of demand as the Christmas shut-down approaches. For many, the water situation has already brought the date forward and many of the businesses will be looking for firm assurances from all the different utility suppliers before they make plans to re-open.
Kindest regards,
John
However, I hope that the attached exchange rate table will help you to keep track of the recent changes. The visible parallel market is barely functioning, but the heightened uncertainties appear to have prompted increased caution among dealers who are still handling requests. However, all the signs suggest a greatly reduced level of demand as the Christmas shut-down approaches. For many, the water situation has already brought the date forward and many of the businesses will be looking for firm assurances from all the different utility suppliers before they make plans to re-open.
Kindest regards,
John
Reserve Bank November 20 2008 Press Statement:
Comments and Observations - by John Robertson
The Reserve Bank Governor’s continued reluctance to admit that market distortions are likely to cause other market distortions appears to be behind his latest intemperate attack on the business sector. To him, the only acceptable explanations for anything are those that ensure that all the blame is placed somewhere other than on the Reserve Bank or the government.
The Governor’s latest efforts start with condemnations of media campaigns that have tried to vilify the Reserve Bank, and of smear campaigns that have argued that he is personally to blame for Zimbabwe’s current hardships. However, his entire defence is to argue that the “facts clearly demonstrate how the Zimbabwe Stock Exchange had become the epicentre of economic destruction”. If the Governor’s more colourful words are removed, the facts presented are:
Ø The ZSE allowed some stockbrokers to bid up share prices, although they had no money to pay for them;
Ø The profits made on selling the shares show up as high demand for cash that is beyond the Reserve Bank’s ability to meet;
Ø The Stock Exchange was deliberately indexing the entire stock market to movements in Old Mutual share prices;
Ø Share prices have frequently risen steeply even though none were traded.
Ø Old Mutual share price movements have shown no relationship with the company’s performance or conditions in the economy.
Dr Gono presents these facts as accusations of professional misconduct, but most of them are no more than descriptions of normal market activity. The circumstances in the market itself are far from normal, but the Governor’s only comments on that subject are intended to deflect the blame for all distortions onto others.
Stockbrokers are usually acting on behalf of their clients, but whether their buying or selling orders are for their clients or for themselves, the buyers want what they have paid for and the sellers want to be paid. Buyers and sellers work through the stock exchange, which is simply a market through which deals are arranged and completed under rules designed to ensure that transactions are carried out efficiently. What buyers, sellers and stockbrokers might get up to is not the market’s responsibility.
This makes the claim that this market has become the “epicentre of economic destruction” absurd. Trying to buy something that can be sold later at a profit is entirely normal conduct. If this profit becomes large because of the scarcities of goods in the market and/or the scarcities of the foreign currency needed to import them, the resulting price increases are not the fault of the market, or the buyers or the sellers.
But buyers do have to work within the law: writing a cheque for an amount in excess of the balance in a buyer’s bank account is illegal. In terms of the law, such a buyer becomes answerable to the seller, possibly through the courts.
Sometimes the buyers’ or sellers’ conduct is chosen to reduce risks or to prevent outright losses and yes, it is sometimes designed to extract the best possible profits. If good profit prospects are then exaggerated by the Reserve Bank choosing to add enormously to the Zimbabwe dollars that can be spent, the fault does not lie with those who make the profit.
The fault lies entirely on the shoulders of those who created the scarcities, anomalies and distortions in the first place. These powerful forces so directly determine the conduct of buyers and sellers that any policy choices that do not effectively deal with them will be no solution at all.
Scarcities account for most of the problems. For goods that used to be in reasonably good supply, the reasons for each and every scarcity can be traced back to some government policy decision. The loss of Zimbabwe’s large-scale farming companies caused reduced supplies of food as well as most non-food agricultural commodities, and their lower production caused lower deliveries to the manufacturers and retailers, lower foreign earnings, lower employment, lower investment levels and lower tax revenues for government.
Falling export revenues did not only mean that Zimbabwe could afford fewer imports. The country also could not afford to settle outstanding debt. Potential lenders were quick to decide Zimbabwe could not be trusted to settle new debts, and when the Zimbabwe government decided to cancel certain property rights and to break the collateral link between farmers and banks within Zimbabwe, the moves reinforced the external financiers’ decisions to keep their distance.
Several other linkages can be identified. When policy decisions caused confidence to fall, the Zimbabwe dollar fell too, prompting government to fix the exchange rate. At the fixed exchange rate, mining and manufacturing exports became less profitable, so a whole new rash of falls affected employment, investment and tax revenues.
And when government’s rising borrowings to make up for declining tax inflows became too expensive because of the rising rates of interest, government set interest rates so low that savings were effectively confiscated. As savings disappeared, investment fell even further, forcing the emigration of those looking for work and of many who had jobs, but saw little future.
Just about every identifiable problem today can be shown to have their origins in dubious policy choices. This remains true whether the challenge is to account for electricity and water cuts, or the loss of nurses, teachers, doctors, engineers and accountants, or the loss of access to lines of credit from international banks or the loss of stand-by facilities from international development agencies.
Price controls, justified by false claims against traders and enforced by political violence, must be added to the picture, along with other forms of intimidation that were intended to generate compliance and obedience.
By carefully redefining the word “sanctions” to include every risk-avoiding decision taken by every individual, government or agency that has chosen not to endorse economically damaging or unjust policies, Dr Gono has tried to shift the blame onto anyone who dares to disrespect the sovereign status of the country and the sovereign rights of its leaders.
Until a few days ago, that line seemed still to be working. SADC parroted the cries for the removal of sanctions, the Pan-African Parliament passed a resolution to the same effect, the impartial mediator in the power-sharing negotiations, Thabo Mbeki, followed the same line and the African Union was also persuaded that the lifting of sanctions would result in Zimbabwe’s economic turn-around.
But this week, the scene has changed. At home, the Zimbabwe currency has become almost worthless, banks have been marginalised, production in every sector has fallen to unsustainable levels, useful wages cannot be paid and services are collapsing. Disease outbreaks are threatening thousands and Zimbabwe is at last being seen as a threat to regional stability.
Regional leaders are losing patience and support for Robert Mugabe is being far less readily offered. The major change has followed upon his displays of arrogance and contempt for important people who have been trying to help. The major effect so far has been a far greater concentration of criticism than ever before.
As news of government’s plans to strip the remaining resources out of the pension funds becomes more widely known, as the need for alternatives to Zimbabwe dollars turns into a threat to the welfare of millions of Zimbabweans, as the efforts made to stifle activity on the stock exchange gather momentum and as food supplies dwindle, the sheer impossibility of the situation continuing will begin to develop its own dynamic.
At this stage, the re-appointment of Dr Gono as Reserve Bank Governor for a second five-year term does not seem likely to make a difference. In his latest statement he re-confirms his conviction that sanctions are the cause of every one of the problems, so none of the measures needed to rebuild Zimbabwe’s capacity to produce, earn, export, attract investment or generate tax revenues are yet being addressed.
Political, rather than economic policy changes are needed to make a breakthrough. Hopefully the pressures will soon reach the levels needed to bring about the necessary changes.
-----------------------------------
John Robertson
November 26 2008
The Reserve Bank Governor’s continued reluctance to admit that market distortions are likely to cause other market distortions appears to be behind his latest intemperate attack on the business sector. To him, the only acceptable explanations for anything are those that ensure that all the blame is placed somewhere other than on the Reserve Bank or the government.
The Governor’s latest efforts start with condemnations of media campaigns that have tried to vilify the Reserve Bank, and of smear campaigns that have argued that he is personally to blame for Zimbabwe’s current hardships. However, his entire defence is to argue that the “facts clearly demonstrate how the Zimbabwe Stock Exchange had become the epicentre of economic destruction”. If the Governor’s more colourful words are removed, the facts presented are:
Ø The ZSE allowed some stockbrokers to bid up share prices, although they had no money to pay for them;
Ø The profits made on selling the shares show up as high demand for cash that is beyond the Reserve Bank’s ability to meet;
Ø The Stock Exchange was deliberately indexing the entire stock market to movements in Old Mutual share prices;
Ø Share prices have frequently risen steeply even though none were traded.
Ø Old Mutual share price movements have shown no relationship with the company’s performance or conditions in the economy.
Dr Gono presents these facts as accusations of professional misconduct, but most of them are no more than descriptions of normal market activity. The circumstances in the market itself are far from normal, but the Governor’s only comments on that subject are intended to deflect the blame for all distortions onto others.
Stockbrokers are usually acting on behalf of their clients, but whether their buying or selling orders are for their clients or for themselves, the buyers want what they have paid for and the sellers want to be paid. Buyers and sellers work through the stock exchange, which is simply a market through which deals are arranged and completed under rules designed to ensure that transactions are carried out efficiently. What buyers, sellers and stockbrokers might get up to is not the market’s responsibility.
This makes the claim that this market has become the “epicentre of economic destruction” absurd. Trying to buy something that can be sold later at a profit is entirely normal conduct. If this profit becomes large because of the scarcities of goods in the market and/or the scarcities of the foreign currency needed to import them, the resulting price increases are not the fault of the market, or the buyers or the sellers.
But buyers do have to work within the law: writing a cheque for an amount in excess of the balance in a buyer’s bank account is illegal. In terms of the law, such a buyer becomes answerable to the seller, possibly through the courts.
Sometimes the buyers’ or sellers’ conduct is chosen to reduce risks or to prevent outright losses and yes, it is sometimes designed to extract the best possible profits. If good profit prospects are then exaggerated by the Reserve Bank choosing to add enormously to the Zimbabwe dollars that can be spent, the fault does not lie with those who make the profit.
The fault lies entirely on the shoulders of those who created the scarcities, anomalies and distortions in the first place. These powerful forces so directly determine the conduct of buyers and sellers that any policy choices that do not effectively deal with them will be no solution at all.
Scarcities account for most of the problems. For goods that used to be in reasonably good supply, the reasons for each and every scarcity can be traced back to some government policy decision. The loss of Zimbabwe’s large-scale farming companies caused reduced supplies of food as well as most non-food agricultural commodities, and their lower production caused lower deliveries to the manufacturers and retailers, lower foreign earnings, lower employment, lower investment levels and lower tax revenues for government.
Falling export revenues did not only mean that Zimbabwe could afford fewer imports. The country also could not afford to settle outstanding debt. Potential lenders were quick to decide Zimbabwe could not be trusted to settle new debts, and when the Zimbabwe government decided to cancel certain property rights and to break the collateral link between farmers and banks within Zimbabwe, the moves reinforced the external financiers’ decisions to keep their distance.
Several other linkages can be identified. When policy decisions caused confidence to fall, the Zimbabwe dollar fell too, prompting government to fix the exchange rate. At the fixed exchange rate, mining and manufacturing exports became less profitable, so a whole new rash of falls affected employment, investment and tax revenues.
And when government’s rising borrowings to make up for declining tax inflows became too expensive because of the rising rates of interest, government set interest rates so low that savings were effectively confiscated. As savings disappeared, investment fell even further, forcing the emigration of those looking for work and of many who had jobs, but saw little future.
Just about every identifiable problem today can be shown to have their origins in dubious policy choices. This remains true whether the challenge is to account for electricity and water cuts, or the loss of nurses, teachers, doctors, engineers and accountants, or the loss of access to lines of credit from international banks or the loss of stand-by facilities from international development agencies.
Price controls, justified by false claims against traders and enforced by political violence, must be added to the picture, along with other forms of intimidation that were intended to generate compliance and obedience.
By carefully redefining the word “sanctions” to include every risk-avoiding decision taken by every individual, government or agency that has chosen not to endorse economically damaging or unjust policies, Dr Gono has tried to shift the blame onto anyone who dares to disrespect the sovereign status of the country and the sovereign rights of its leaders.
Until a few days ago, that line seemed still to be working. SADC parroted the cries for the removal of sanctions, the Pan-African Parliament passed a resolution to the same effect, the impartial mediator in the power-sharing negotiations, Thabo Mbeki, followed the same line and the African Union was also persuaded that the lifting of sanctions would result in Zimbabwe’s economic turn-around.
But this week, the scene has changed. At home, the Zimbabwe currency has become almost worthless, banks have been marginalised, production in every sector has fallen to unsustainable levels, useful wages cannot be paid and services are collapsing. Disease outbreaks are threatening thousands and Zimbabwe is at last being seen as a threat to regional stability.
Regional leaders are losing patience and support for Robert Mugabe is being far less readily offered. The major change has followed upon his displays of arrogance and contempt for important people who have been trying to help. The major effect so far has been a far greater concentration of criticism than ever before.
As news of government’s plans to strip the remaining resources out of the pension funds becomes more widely known, as the need for alternatives to Zimbabwe dollars turns into a threat to the welfare of millions of Zimbabweans, as the efforts made to stifle activity on the stock exchange gather momentum and as food supplies dwindle, the sheer impossibility of the situation continuing will begin to develop its own dynamic.
At this stage, the re-appointment of Dr Gono as Reserve Bank Governor for a second five-year term does not seem likely to make a difference. In his latest statement he re-confirms his conviction that sanctions are the cause of every one of the problems, so none of the measures needed to rebuild Zimbabwe’s capacity to produce, earn, export, attract investment or generate tax revenues are yet being addressed.
Political, rather than economic policy changes are needed to make a breakthrough. Hopefully the pressures will soon reach the levels needed to bring about the necessary changes.
-----------------------------------
John Robertson
November 26 2008
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