Thread by @baba_nyenyedzi

I acknowledge there are some of us still interested in the study of economics and would want to correctly analyse the Zim new “currency” or “new money” in a framework.

Driven to ensure the different economics school can agree on.

Zim has technically introduced new money. /1

RTGS was not technically currency. Nor was the addition of ZWL to the RTGS balances.

RTGS was credit money. Or if you like. Money substitute. These were balances created through credit by the RBZ mostly and banks - through fractional reserve banking .

So there was no currency/2

This is the correct technical position since USD cash left the system in 2015.

RBZ introduced a bond note and coin. Which they acknowledged was not money. But a credit token. A credit token which was backed 100% by Afreximbank .

The credit token was fully redeemable/3

Of course this was fiction. Since Afreximbank never then released the USD cash nor stopped RBZ from creating more credit tokens.

Therefore the whole monetary system was of electronic credit tokens and paper/coin credit tokens./4

An example may suffice. Using a bank.

Suppose A deposits $10k hard cash. The bank keeps the $10k in its vault but gives credit to 5 people. Each with $10k “credit”. The banks balance sheet has grown to $60k- since each person will keep their “credit” as a deposit with the bank/5

But the bank only has $10k in its vault. That’s real money. The other $50k is electronic credit.

Suppose there is a break in at the bank and a robber steals the $10k in the vault.

However the bank doesn’t report the theft and buy the newspapers to keep the news under wraps/6

Before the robbery the bank had $10k cash and $50k credit . Total deposits $60k

After the robbery it has ZERO cash and total deposits of $60k.

The $60k no matter what name you give it, it’s not currency./7

In our example, The bank was RBZ and the borrower was GOZ. GOZ used the credit to pay its suppliers of goods and services. Who all maintained electronic credit tokens which we termed RTGS/8

Therefore technically Zimbabwe has introduced a new currency called ZWL. And it has huge implications;

1: Imagine in our bank example there is new money in the vault. It means ability to create more credits.

2:Real cash has greater velocity of transaction than electronic./9

Recap with numbers:
Aug 2013 in USD

1: Cash in vaults ~ $1bn
2: Credit money ~$3.6bn
3: Total deposits ~ $3.9bn

Most of the credit money created was by pvt banks to pvt sector. Backed by the cash in the vaults. Banks could manage the risk.

RBZ did not create any money./10

August 2019

1: Cash in vaults ~ $0.5bn credit tokens called bond notes/coins
2: Credit money ~ $43bn
3: Deposits ~$20bn

Credit money to pvt sector is $6bn while the rest is credit to GOZ and RBZ.

The whole system is credit money./11

The exercise or effect of SI213 and SI 212 is to effectively create new currency.

RBZ/GOZ can payoff it’s debt/credit using these notes and coins.

RBZ limits the size of the notes to $5. But if this printing was harmless they would print $ZWL200 note. 1:1 with rand./11

This printing is replenishing the vaults plus obviously paying off its creditors.

Small notes is to reduce the impact of the velocity of money. Notes & coins have a higher velocity than credit money. Noted &coins are immediate whereas credit can be pushed to future date /12

That is why Notes and coins have a premium.

As long as it’s credits money. Inflation is somewhat contained. Eg GOZ gives depositors TB’s that mature in 5yrs time instead of cash today. Cash today is more inflationary than cash later.

GOZ is forced to print /13

.... to placate it’s suppliers who are now refusing TB’s. Which are worthless and prefer either cash or USD indexed TB’s the 1:1 TB’s that Sakunda was given recently.

GOZ suppliers are forcing GOZ hand. Since there is too much credit money hence it loses its value/14

The pressure to start printing currency is coming from gold suppliers, farming suppliers, soon tobacco farmers and all other GOZ suppliers.

Suppliers have been rejecting electronic credit money and worthless TB’s as a form of payment.

Cash allows GOZ to make payments./15

The consequences are dire. The system creates a moral hazard. GOZ benefits from the impending inflation. As the biggest borrower in the market, inflation wipes away its debts. While depositors/savers lose real value.

Economic growth comes from savings.

The end.

Thank you to all those that commented with serious application of mind. From comments I identified 4 schools of thoughts
1: Austrian
2: Monetarist
3: Keynesians
4: Woeful ignorance

Not sure if Twitter is the best platform to debate the nuances.