Imara helps bring Zimbabwe hyperinflation to book

The Botswana-registered Imara financial services group this week saluted the launch of the book Zimbabwe: Hyperinflation to Growth as a catalyst for constructive debate on how to implement currency reform in that troubled nation and what form it should take.

The book by Professor Steve H Hanke, the international guru on currency reform, is sponsored by Imara and is published in Harare by the New Zanj Publishing House.

Hanke is a professor of applied economics at The Johns Hopkins University in Baltimore and a senior fellow at the Cato Institute in Washington DC. He is also a Forbes columnist and an adviser to numerous countries. He has helped to design or implement currency reforms in several countries, including Argentina, Estonia, Lithuania, Bulgaria, Bosnia-Herzegovina, Montenegro, and Ecuador.

One of his suggested solutions could see Zimbabwe ditching its own dollars for the South African rand, or perhaps the US dollar or Euro.

Philip Gray, chairman of Imara Holdings Limited, comments in the foreword: “Imara hopes the publication of Steve Hanke's excellent work will at least add to the constructive debate on Zimbabwe's economic future, although mindful of the old adage ‘the only thing you learn from history is that people don't learn from history’.

“We wish Zimbabwe's leaders and its people well for the future and sincerely hope they can resolve the current economic difficulties and soon re-establish Zimbabwe as one of Africa's leading economies. The remedy for renewed economic growth and prosperity is within their grasp.”

Hanke’s core argument is that "the most reliable way to stop hyperinflation in Zimbabwe is to replace central banking with a new monetary regime".

He proposes financial liberalisation supported by three possible mechanisms for currency reform:

• dollarisation (use of another currency in tandem with or as a replacement for the Zim dollar)
• a currency board (an institution that issues notes and coins, while all the board’s monetary liabilities are fully backed by a foreign reserve currency) whereby the Zim dollar is retained and is fully convertible into a reserve currency at a fixed rate.
• free banking (an historically successful system whereby private commercial banks issue notes and other liabilities with minimal regulation).

All three share at least two features in common – the systems have no power to chop and change monetary policy and no ability to finance government debt.

Hanke writes: “To restore economic growth, hyperinflation must be extinguished rapidly and people must have confidence that inflation will not return. If they do not, unstable expectations and uncertainty will arise and undermine the stabilization program and economic growth.

“Confidence can best be accomplished if Zimbabwe’s central banking system is replaced with one of the three options presented in this study: dollarization, a currency board system or free banking. None of these options require preconditions prior to their implementation, and any one of them would establish stability and restore economic growth.”