Zimbabwe Is Not The Only Country Printing Money
Zimbabweans are the most classic egomaniacs. I have people proclaiming to me that I lack elementary economics understanding because I fail to realize that Zimbabwe's problem is printing money and this is why the bond note in Zimbabwe is worthless.
I just have to laugh at this ignorance, seriously, because people are still relying on micro economics 101 textbook theory instead of real practise.
So here is real international economics practice knowledge for nothing my dear brothers:
All central banks in the world print money, and when we say they print money we don't mean printing notes and coins for physical distribution because printed money in most economies just constitutes about 3-4% of total money supply.
The rest and majority of the money in the economy is debt which usually forms about 90-96% of all currency in circulation.
Every time a reserve bank or commercial bank in a nation gives a loan, they are inevitably printing money [creating debt] and increasing the money supply.
Every time gvt sells bonds or treasury bills to the market, the banks that buy those instruments essentially create debt at a ratio of 10:1 to assets held. In Europe the European bank is known to create up to 21 times more debt to assets held.
When commercial banks receive deposits from account holders who just got paid for a private sector or gvt tender or service rendered. They can essentially create debt of 9 times the amount deposited according to the guidelines of Basil1, and that cycle goes on and on into perpetuity so long deposits are taking place.
In Zimbabwe we don't print money anywhere near that rate. So Zimbabwe essentially prints money at a lesser rate than the international average.
The only major borrower of money in the Zimbabwean economy currently is the Zimbabwean gvt with the commercial banks and reserve bank through treasury bills and running over-draughts.
Our commercial banks are reluctant to lend money to private citizens, preferring to buy government treasury bills while they sit on a cash pile US$2bil of the foreign currency reserves earned from lending government.
Meanwhile, the reserve bank just has US600mil of that quota *According to Mangudya*. Albeit, in most other countries the commercial banks are the biggest lenders controlling about 90% of the debt which mainly constitutes housing bonds followed by corporate financing, credit card debt and vehicle finance.
I general practise reserve banks are usually the lenders of last resort and bankers for gvt. In South Africa the South African Reserve Bank creates nothing more than 6% of debt which goes to reserve bank companies and a bit to gvt and commercial banks.
Then we have quantitative easing that most western and eastern nations have been embarking on for the past 9yrs. This is printing money on steroids, outside the limits of the fractional reserve banking 10:1 asset ratio as done in normal debt creation.
In this case the United States gvt created $2trillion worth of debt over and above the fractional reserve allocation from 2009-2015 by selling treasury bills and bonds.
Europe created €700billion of debt during more or less the same period. Some people say the real numbers of debt created in these developed economies was way above the quoted numbers.
Zimbabwe has never created such debt in the economy ever. Essentially in this era of neo-liberal economics, most economies are run by printing money [by debt]. Without debt a lot of nations would not stand.
In theory debt is meant to result in increased borrowing by industry for production and to consumers for consumption of the industrial output. Sadly, it doesn't quite work like that as most of the capital ends up in elite bankers hands for gambling in derivatives and market speculation.
So the fallacy that printing money kills the economy as it did Zimbabwe is fallacious at best and ignorant in the true sense of current neo-liberal economic practice.
Zimbabwe was affected by a multiplicity of other factors that include sanctions, over consumption, low debt allocation to production, a lack of innovation and corresponding low industrial production.
Having made a lot of assertions above, it‘s only fair for me to qualify a few exceptions in my position:
• The concept of debt creation in fractional reserve banking is driven by capital owner's appetite for rent seeking or earning interest off money made from thin air.
This essentially means for every loan you receive from a commercial bank, they are lending you just 10% of money thar is backed by reserves, while the rest is zeros created by a computer. And if they are charging you 10% interest they are making 900% on their real capital.....genius right?
But experts have pointed out in clear terms that this cycle of continuous debt that piles more money in the hands of the few at the top of the money creation cycle will lead to a debt bubble that we can not ever repay.
• Already financial experts are saying our international debt has already passed the point of being amortizable, as all the capital and money is concentrated in the rent seekers hands: banks, western gvts, investors and industrialists.
• Zimbabwe's problem in the neo-liberal context has been a lack of the ability to create debt. Our commercial banks not lending toward production or them charging exorbitant interest rates that prohibit borrowing for production, employment creation and investment in captal accumulation: new machines, technology and innovation.
• However, in practical terms the Zimbabwe citizen is less indebted than they would if our commercial banks were lending. Currently $4bil of Zimbabwe's sovereign debt is private debt.
• And in contrast to the rest of the world, Zimbabwe has a higher ratio of physical currency floating in the economy vs debt.
• As some might already know Gaddafi was killed for trying to create the African Dinah which was meant to be backed by African gold and other minerals.
I still believe, at the risk of being attacked, Zimbabwe needs to look at a new currency backed by our resources to resuscitate the economy.......however, we will need to employ vast capital to accumulate that amount of resources.
I'm still not sure that debt is beneficial, particularly external multi-lateral debt but I know that productive nations like Saudi Arabia, Dubai, Russia and even Nigeria run economies of very small debt, which maybe a testament that you don't have to run an economy on debt.
Rutendo Bereza Matinyarare