Reserve Bank of Zimbabwe governor Dr John Mangudya has
likened the southern African country’s ongoing economic woes – including running
inflation and a currency in free fall – to a demon that can’t be touched, but
can be felt.
On 1 January 2019, the Zimbabwe dollar was pegged at 1:1
with the US dollar, but after it was floated in February, it tumbled and had to
be pegged again at 1:25 in March this year. It is now worth 1.6% of the United
John Roberts blames this on unrestrained money supply growth
combined with government spending outside the national budget.
On the parallel market, used by many in the informal
economy, the exchange rate has fallen to 1:60 against the greenback.
Mangudya, for his part, does not blame the currency tumble
on the central bank’s “perceived” strong appetite for money printing.
Instead, he has attributed it to an economic demon he likened to the outbreak
of the coronavirus.
The origins need to be traced, he added.
Addressing the Budget and Finance Parliamentary Committee on
Wednesday this week, Mangudya said: “There is a demon in our economy which
needs to be traced. It’s more like an economic virus, which you can’t touch but
you can feel it,” he said.
Zimbabwe’s inflation, which Mangudya told Parliamentarians
is tied to the exchange rate movement, stood at 676% in March – a ten-year
Mangudya did not address rising prices, an ongoing challenge
for Zimbabweans, many of whom face low disposable incomes and increasing
“We are so convinced that there is a demon in our
economy. We are defying logic,” he said.
“There is asymmetric economic warfare that is going on…
which is more like a virus which we cannot see. We are all wearing masks, we
are all afraid of it – no one knows what it is – [and] so is our economy.”
The challenge goes beyond money supply, he added, in
response to critics of the central bank’s response.
The Zimbabwe dollar’s rapid devaluation could be attributed
to non-monetary factors such as speculation, indiscipline, perception and
manipulation, he said.
He also attributed the situation to the country’s biggest
mobile money service platforms, which, as of 8 May 2020, accounted for 88.33%
of national transaction volumes.
The mobile banking platforms are now being used as an
industry by foreign currency dealers, where they trade foreign currency in a “Ponzi-like”
market, he said.
“They are making money out of selling money,” by
selling at a higher rate than it was purchased, Mangudya argued.
He said the central bank, which two weeks ago froze some of
the mobile money accounts, wanted to “exorcise the demons” on that
platform, which according to Mangudya is now more like “Sodom and Gomorrah”.
The central bank will apply “chemotherapy” on the “cancerous
activities” eroding livelihoods of Zimbabweans, he vowed.