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Functions of Money THREAD.
As you might have read already, the ED government has abolished the multicurrency regime and fast-tracked the reintroduction of the #ZimDollar. We will continue with our functions of money thread, but with brief responses to this new development.1
We are of the firm belief that policy debates, especially on important subjects like the national currency, should be conducted in an open, transparent and jargon-free manner. I challenge Hon Mthuli/Mangudya to do a lecture on currency reform at UZ, NUST of MSU.2
Today we are focusing on the key functions of money, namely medium of exchange, unit of account, store of value and standard of deferred payments. Anyone who has done 'O' level economics would know this stuff. 3
@GutuObert @buildzimbabwe @DrNkosana @drnmanyika @shumba327 @zimlive
1.1Medium of exchange: money allows goods and services to be traded without the need for a barter system. This only works as long as the seller is confident, that he will be able to use the currency he receives to products of equal value later on. 4
@XixuXaxa @Panashe468
1.1. The challenges we are currently having in Zimbabwe are that a) the #RTGSDollar is losing value daily and b) it's not tradeable internationally. Thus, suppliers don't have confidence in it. Is the new #ZimDollar the solution? 5
@nelsonchamisa @edmnangagwa @nickmangwana
1.2. A currency which is acceptable by economic agents as a medium of exchange significantly reduces the cost of doing business in an economy. Having a single currency is correct. However, the currency has to be acceptable. 6
@MthuliNcube @GGuvamatanga @FinanceZim
2.1. Store of value: refers to any asset whose “value” can be used now or used in the future i.e. its value can be retrieved at a later date. This means that people can save now to fund spending at a later date. 7
@MhlambululiMafu @mafirakureva18 @JMafume
2.2 For any currency to be used as a store of ‘value’, its market/exchange rate value has to be stable. This is one of the most difficulty party of monetary economics. In a liberalised system, badly run economies are exposed by their depreciating currencies. 8
@bmusonza @XixuXaxa
2.3 The other option is to run a fixed/ pegged exchange rate system. To keep maintain the peg, @ReserveBankZIM has to buy & sell #ZimDollar on the forex market to balance supply and demand. RBZ must therefore maintain a high level of currency reserves, usually USD. 9
2.3. A pegged regime can be beneficial in the facilitation of trade and investment. The main source of foreign currency for any country is exports. This means that #Zimbabwe has to export and attract FDI for it to gain forex reserves. 10
@CdeNMaswerasei @fortunechasi @MatutuLewis
2.4 As a country, we need an introspection on how we have treated currency as a store of value. Many people lost their assets when the old #ZimDollar lost value. We also lost value when BondNote/RTGS was introduced. This change might also lead to losses. 11
@ShingiMunyeza @Tafiez
2.5. What’s is the plan to make sure that pple will trust this currency as a store of value? This is a very important point, as it determines savings, banking and transaction behaviours. 4 people to save, they have to be confident that the value is stored in the currency. 12
3.1. Unit of account: this refers to anything that allows the value of something to be expressed in an understandable way; in a way that allows the value of items to be compared. There has been confusion whether #RTGSDollar or USD was the unit of account? 13
3.2. Prof @MthuliNcube would talk about budget surplus in #RTGSDollars but use the USD for back of the envelope calculation on inflation or cost of living. This confuses the market on which unit of account to use. 14
@InfoMinZW @nickmangwana @PacheduZW @OpenParlyZw @zimlive
3.3. The change from old #ZimDollar to USD/multi-currency, to BondNote/RTGS and now back to #NewZimDollar is a nightmare for accountants, statisticians, bankers, economists, etc. This is the main reason why currency changes should be well planned. 15
@BrianRupiya @daddyhope
4.1. Standard of deferred payment: this refers to the expressing of the value of a debt i.e. if people borrow today, then they can pay back their loan in the future in a way that is acceptable to the person who made the loan.16
@CBZHoldings @stewardbank
4.2. the changes in currencies in the last 2 decades has killed the credit market, esp long-term credit. The market want predictability. The 1st question economic agents ask: 4 how long would this #NewZimDollar maintain it’s value? Pple will be sceptical, understandably so. 17
Four (4) big questions we raise in this thread are:
1.Will this #NewZimDollar be accepted by the market as medium of exchange? The statutory instrument from the RBZ makes it mandatory. It’s the law. 18
@energymutodi @Wamagaisa @daddyhope @HeraldZimbabwe @FingazLive @ProfJNMoyo
2.Would #Zimbabweans trust this #NewZimDollar as a store of value? The jury is still out. History is not favourable 4 the #ZanuPF gvt. Many people lost savings, pension and livelihoods due to this never-ending currency crisis. 19
@ReserveBankZIM @zanupf_patriots @ZANUPF_Official
3. Would the #NewZimDollar be stable against other currencies. I don’t think so. We currently don’t have forex reserves and our export capacity is at it’s lowest. We don’t have electricity, fuel, and our workers are now incapacitated to work! Production capacity is around 30%. 20
4. Can this #NewZimDollar help revive the credit market? Business confidence in Zimbabwe is extremely low. Mega deals have not yielded anything. Due to violation of store of value, banks are now constrained on liquidity. We need external lines of credit as of yesterday. 21
I wanted to do another thread on benchmarks or conditions necessary for a country to come out dollarization.

It has been overtaken by events. #NewZimDollar is here now! 22

@nelsonchamisa @edmnangagwa @nickmangwana @ZimEye @zimlive @ZimMediaReview @HeraldZimbabwe @povonewstv
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