Friday, January 9, 2009

Headline of the Day

Zimbabwe: Currency Facing Extinction;
A senior government official said Zimbabwe had approached South African finance minister Trevor Manuel and South African Reserve Bank governor Tito Mboweni with a proposal that they rescue the Zimbabwean economy by extending the common monetary area of rand into Zimbabwe. It currently encompasses South Africa, Namibia, Lesotho and Swaziland.

Similar proposals have been made by Steve Hanke, Cato Institute Senior Fellow and Professor of Applied Economics at Johns Hopkins University, who advocates the creation of a currency board to end Zimbabwe's spiralling inflation, and by Tomaz Salamao, executive secretary of the Southern African Development Community, SADC.

Tomaz has reportedly suggested that Zimbabwe's depleted foreign reserves be topped up with the South African currency and that Zimbabwe be allowed to join the rand monetary area.

The Zimbabwe government, invoking its sovereignty mantra, initially rejected the suggestion, but IWPR has learnt that it has backed down under the pressure of the imploding economy and proposes issuing Zimbabwean dollars that are fully backed by and convertible into rands at a fixed rate.

Under this plan, the currency board will initially be capitalised by South Africa and the rand will be allowed to circulate legally in Zimbabwe.

"The rand would effectively prop up the Zimbabwe dollar," which has become almost worthless, said a government official.

The ultimate aim would be to stabilise the exchange rate of the Zimbabwe dollar and curb hyperinflation, enabling the country to buy foreign exchange and continue to import essential goods.

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