Zimbabwe Set To Beneft From The Use Of Rand

In a report released by the Bretton Woods institution’s Africa department, Zimbabwe stand to benefit by joining the rand Common Market Area (CMA) in the region which includes South Africa, Lesotho and Namibia.

“If Zimbabwe joined the South African Customs Union (SACU), a hard peg to the rand would reinforce economic integration with South Africa and the countries whose currencies are pegged to the rand in part owing to the absence of exchange rate fluctuations. This, in turn, would contribute to lower real effective exchange rate volatility,” the IMF said in a report titled Zimbabwe: Challenges and Policy Options after Hyperinflation.

“Because of the significance of South Africa, a hard peg to the rand would reduce trading costs and support further trade integration between the two countries.”

“Zimbabwe and South Africa can potentially agree on sharing seigniorage similarly to the existing arrangements of South Africa with Lesotho and Namibia in context of Common Monetary Area (CMA).The ensuing political backing of South Africa would strengthen the credibility of the new monetary regime in Zimbabwe,” the IMF said.

The IMF said since Zimbabwe is the dominant trading partner with South Africa as opposed to the United States using the rand will provide ‘more appropriate small denominations’ lower than the US dollar. The Fund added that the country’s proximity to South Africa will help Zimbabwe access the South African capital and markets.

“South Africa is Zimbabwe’s dominant trading partner. About 40 percent of Zimbabwe’s imports originate from South Africa and 25 percent of Zimbabwe exports are delivered to South Africa. Zimbabwe’s trade with the United States is only a small share of total imports and exports,” the IMF said.

 “The rand would also offer more appropriate small denominations, and banknote and coin handling costs will be lower than with the US dollar. Institutions in the public and private sector CMA member countries, subject to relevant financial laws and policies applicable to counterparts in South Africa, have the right of access to the South African capital and markets.”

Zimbabwe adopted using multiple currencies in the economy early 2009 following the off-loading of the local dollar after years of hyper-inflation. The country now uses mainly the US dollar in its transactions while the rand is mainly used in the Matebeleland region close to South Africa.