HARARE – The International Monetary Fund (IMF) has advised Zimbabwe to consider pegging any future currency to the rand of more prosperous neighbour South Africa should Harare opt to abandon its present multi-currency regime.
In report produced by the IMF’s Africa department titled, Zimbabwe: Challenges and Policy Options after Hyperinflation the Fund said Harare could consider becoming a member of the Southern African Customs Union, which is dominated by South Africa and includes Botswana, Namibia, Lesotho and Swaziland.
"If Zimbabwe joined the South African Customs Union (SACU), a hard peg to the rand would reinforce economic intergration with South Africa and the countries pegged to the rand in part owing to the absence of exchange rate fluctuations," said the report released at the weekend.
"This would contribute to lower real effective exchange rate volatility. In the case of Zimbabwe, South African rand and the US dollar have been considered as possible anchor currencies," it added.
Harare last year ditched the worthless Zimbabwe dollar (ZW$) and introduced a basket of currencies – including the United States dollar, South African rand, British pound and Botswana pula – as legal tender, a move that immediately halted hyperinflation that had ravaged and discredited the ZW$.
The coalition government of President Robert Mugabe and Prime Minister Morgan Tsvangirai has previously said it wanted the ZW$ back once the economy was on a sustainable path to recovery and industrial capacity utilisation was above 60 percent.
The IMF report said an assessment of trade within the region, shocks affecting the region, labour mobility within the region, fiscal transfers within the region showed the rand was better placed as an anchor for Zimbabwe’s currency than the US$.
"The rand would also offer more appropriate small denominations and bank note and coin handling costs would be lower than with the US dollar,” it said.
Zimbabwe and South Africa are each other’s biggest trading partner on the continent in addition to being strong political allies. The two countries earlier this year signed a bilateral investment promotion and protection agreement that analysts say will help boost economic ties between the two nations. -- ZimOnline
