Mugabe's Economic Strategy - All Zimdollar Bank Accounts To Be Converted Into Hard Currency

The latest Zimbabwe news from me concerns Mugabe's plan for surviving in a unilateral government. But before that, I am sure you have by now seen the Financial Gazette story published yesterday confirming what I told you in my article entitled Zimbabwe Stock Exchange To Be Dollarised. I told you in that article that dollarisation of the Exchange would be with us by March this year and the Fingaz story confirms this also by laying out the steps that will now be taken to achieve the dollarisation.

At the same time, the always excellent Zimbabwe Independent also confirmed today another story I broke here on Tuesday, January 20, telling you all that Dollarisation Is Now Official. I said that there would be surprises in the budget to be announced by the dimwitted Chinamasa on Thursday. The Independent says in an article on its front page today that the budget will confirm the full dollarisation of the economy.

The Fingaz story, which quotes the Chief Executive of the Zimbabwe Stock Exchange, is obviously not news to my regular readers as is now becoming the norm, where I break stories here for my select, small group of readers who are in the know long before the rest of the nation catches on. As one reader said in a comment a few weeks back, "It's nice to feel so exclusive!" 

The latest Zimbabwe news I alluded to above is also connected to the Stock Exchange in a way. Zimbabwe's official use of the rand has now been agreed on. Despite the ignorant talk in some quarters that this move would have meant Gono printing Rands, the printing of South African currency by Zimbabwe was NEVER an option from the very beginning of the discussions with the South Africans.

(I guess if you are economically illiterate, you would immediately think that Zimbabwe using Rands means that the country would also be printing that currency. That has never been the case anywhere in the world. Even where economies dollarise and use the US currency, it NEVER, EVER means that that economy prints US dollars.)

Anyway, the real shocker is that, as a result of the agreement for Zimbabwe to use the Rand as its benchmark currency, the "government" has now decided on the strategy of driving inflation up to dizzying heights. This is the reason why you see the currently useless $10 trillion note being issued. Next week, you will see a Z$100 trillion note being issued. 

There is method to this madness. You will remember that there are currently decillions of dollars in people's bank accounts at the moment. This is money that was acquired through the "burning" of US dollars, where, if you were purchasing the American greenback by non-cash means (i.e. cheques and electronic transfers), you paid sometimes 1 000 (one thousand) times more than the ruling (actual) cash rate of the day.

Because, very soon, all Zimdollar bank accounts will be converted into hard currency, those with these decillions of dollars in their accounts would find themselves very rich indeed in US dollar terms, a way had to be found to make those decillions worthless. This is where the strategy of driving inflation up has now come in. 

Here's what will happen: The government knows that, whenever it prints high-denomination bank accounts, the US dollar chases the highest denomination until that denomination (say, a Z$1 quadrillion note) is worth less  than one US dollar.

Mugabe and Gono have now decided to use this "mentality" (that's what they are calling it) to destroy the inflated value currently locked up in some bank accounts. Gono said last week that even if it meant that he would print a Z$1 decillion note, he will do it.

Now, "burning" is no longer taking place, so there is no new inflated wealth flowing into bank accounts, hence the focus is now on destroying the stupendous values that are already in accounts right now. Gono, in the same conversation I referred to just now, also indicated that there is actually a specific bank account, one with the largest sum of money in all of Zimbabwe, that he is targeting as a benchmark.

The Mugabe regime is absolutely certain that, as it prints ever higher denominations, the US dollar will also be asking for more and more. When a certain pre-determined threshold is achieved, it will be announced that bank accounts will now be dollarised. The money in you account will be converted to US dollars using the black market exchange rate on that specific day. (It is hypocritical, but what are you going to do about it?)

I have been trying very hard over the last two days to find out what this predetermined black market rate they are waiting for is, but I have failed. Still, I think the general idea is clear enough:

Let us say you are the person with that targeted bank account which has, for our purposes, let's say Z$100 decillion. And let us say that the predetermined black market rate at which conversion of Zimdollar bank accounts into hard currency (rand) will be announced is Z$1 decillion dollars to US$1. It then means that on the day this is announced, your 100 decillion Zimbabwe dollars will be turned into 100 US dollars. Of course, what you sold to get that 100 decillion Zimdollars was worth much more than 100 US dollars when you sold it, perhaps it was worth even several thousands or tens of thousands of US dollars.

In one fell swoop, that "ill-gotten" wealth will be destroyed while it is in your account. 

Mugabe and Gono have high hopes for their dollarisation drive. They can see already that shops selling in hard currency are now full to the brim not only with goods but also with people buying those goods using US dollars, Rands and, like I saw at OK First Street yesterday, even UK pounds.

They believe that this new direction will revive the economy. They are no longer worried about local manufacturers or protecting local industry, whom they accuse of "sabotage". You have heard both men say countless times that local manufacturers were sabotaging the economy even when they got hard currency from the Central Bank to revive their operations.

Zimbabwe, in essence, has now decided to become a nation of shopkeepers, not manufacturing much itself, but simply surviving on trading goods manufactured by other countries. Dollarisation will ensure, they hope, that there is no risk of the pain of being a non-exporter of value-added goods being transferred to the public, the people who vote.

As Gono said last week to a ZANU PF Politburo member, "The president says that no company votes in a general election".

You will as usual, get confirmation of this before long. But you are the first to know.

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  1. Has the RSA govt. agreed to the "randisation" of the Zimbo economy, Denford?


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