HARARE, May 6 (The Source) – When Gideon Gono’s term ended at central bank, he left a $1,3 billion debt. But the bigger, more damaging deficit he left was public trust.
In December 2014, as the economy struggled with the big problem of small change, the bank introduced bond coins. Stores had been handing out everything from matches to teaspoons as change, if they were not ripping customers off by rounding off prices.
The immediate public reaction to the bond coins was predictable. This was an opening for the Zimbabwe dollar to sneak back in, critics said.
Few things strike fear into the heart of a Zimbabwean than the word “Zimdollar”. Social media platforms were on fire, opposition politicians told people to run for the hills and economists predicted doom.
But not long after its launch, the bond coin ran into some good fortune. The rand, the small change of choice in Zimbabwe, tanked. Commuter omnibus crews began preferring bond coins over rand coins and, suddenly, the much derided bond coin was in business.
And that is how it worked for the bond coin, market forces and the ruffian combi crews, and not the words of John Mangudya, the Reserve Bank of Zimbabwe (RBZ) governor.
When he took over at RBZ in May 2014, Mangudya found a central bank up to its eyeballs in debt. A few legal steps and some of that legacy debt was soon off his shoulders. But the one deficit he inherited from Gono, that big gap in public confidence in the bank, remains the one he is still struggling to shrug off. Confidence is the one thing no bank can afford to lose, least of all a whole central bank.
When he launched bond coins, he had made fairly plausible explanations. This was a necessary step, the coins had real value as they were backed by real money, and this system had worked elsewhere.
These were rational explanations, if they were being made to a perfectly rational audience, and by a bank that itself has acted rationally in the past. Sadly for Mangudya, the 10 years before his term are a case-study in how to kill a nation’s confidence in its own central bank.
Gono’s monetary policy had been anchored on uncertainty, which he wielded like a weapon, making him one of the most powerful people in the country.
In the end, we began to expect a new crisis to follow any economic announcement. A new currency overnight, new prices, sudden new rules that forced us to change, within hours, the way we lived our very lives. How many times did the words “with immediate effect” drive us into panic?
The result was a collapse in public trust in RBZ, or in any government institution and indeed the government itself. They could not be trusted to make economic decisions that made people’s lives better.
Worldwide, central banks are an exercise in conservatism and, in a good way, tedium. Central banks make the extra effort to be boring. You would think, when they look for governors, they go out and just pick out the most boring nerd in the crowd and give them the job.
In contrast, we had a central bank that was all rock’n’roll. Over a bloody few years, it ran around the banking sector with a hatchet. Workers turned up at their banks on payday to see an RBZ foreclosure notice pasted on shuttered doors. Confidence in banks has never returned since.
And so, this week, as Mangudya announced the arrival of bond notes, the latest in a string of desperate government measures to deal with a liquidity crisis. The reaction from the public, like in 2014, was predictable. Bearer cheques all over again! Grief all over social media, politicians telling people to run for the hills, and economists yet again predicting doom.
Again, as he did back in 2014, Mangudya was making some plausible arguments. He answered reporters’ questions openly. This was a crisis, he suggested, and something had to be done while we worked on fixing the underlying issues.
Mangudya used the word “dysfunctional” to describe a multicurrency system that had looked so successful political parties fought to be credited for it. The economy, the governor said, was suffering from the dominance of the US dollar in the market.
Mangudya urged “education and awareness” campaigns to encourage adoption of the new measures and to get people using electronic money. But, without decisions that actually restore the economy, no amount of PR can restore public trust. To use plastic money is to keep money in the bank, but the scars of the hatchet period are still fresh.
The lack of public trust in the RBZ is a reflection of the distrust Zimbabweans have for state institutions. Few trust government to do the right thing, a fact finance minister Patrick Chinamasa has alluded to on several occasions. Zimbabweans live in a state of perpetual panic. There is always that feeling of a new crisis around the corner.
There is that fear that someone can say the magic words “with immediate effect” and all their savings will vanish. Who can forget how pensions, insurance policies and life savings vanished with the words “with immediate effect” as the Zimdollar was ditched overnight?
Nobody is reintroducing the Zimdollar, of course. Apart from the occasional ZBC-grade economic analyst, nobody in government wants the Zimdollar back. Not Finance Minister Chinamasa, and certainly not Mangudya himself. And yet, despite Mangudya’s best efforts, the public just refuses to believe anything he says.
It took the rand collapse and commuter omnibus crews to get people to use bond coins, and not any of the RBZ’s explanations.
That many are willing to believe rumours posted on their church whatsapp group more than a whole central bank should tell government just how deep its reputation deficit is. And no amount of PR can fix that.
Only doing the right things will.