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Giant Ponzi scheme .. How to destroy the economy of the state and the savings of its citizens?​​​​​​​


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Giant Ponzi scheme .. How to destroy the economy of the state and the savings of its citizens?

Giant Ponzi scheme .. How to destroy the economy of the state and the savings of its citizens?

 10 March 2019 03:58 PM
Editing: Sally Ismail

Mubasher: About two decades of corrupt monetary policies have destroyed Zimbabwe's economy and boosted rampant inflation, eroding people's savings twice .

Unrestricted inflation of 500 billion percent in 2008 caused the savings to be worthless and led to the cancellation of the local currency for the dollar the following year, according to a Bloomberg report .

In the year 2016, the former government of former President Robert Mugabe, who was in financial straits, introduced securities known as "Bond Note", while maintaining their dollar-dollar trading .

In 2018, the government separated the cash deposits from the electronic currency in banks without reserves to support them, causing the collapse of the currency price on the black market (the informal market).

Last week, the Zimbabwean government admitted defeat and allowed the Bund Knut to trade within the market-defined range, which once again reduced the value of savings .

The decision came after the country in the southern part of Africa, facing shortages of bread and fuel, was hit by strikes and protests, as well as attempts by President Emerson Mengagawa to attract new investment .

According to Derek Matisak, a research adviser at the Zimbabwe-based Institute for Security Studies in Zimbabwe, the reason for all this is the currency crisis .

"This is similar to the creation of a giant Ponzi scheme that arose under Mugabe's leadership. What we are seeing now is that the Ponzi scheme is collapsing," he said.

The Ponzi scheme "Ponzi Scheme" is a way to trick invented by Charles Ponzi, where he vows to give investors very high returns with low risk and by providing returns to old investors through others in the new system speculators will continue until the bubble burst .

"Hypothesis 1 to 1"

While the last step has been welcomed by the country's business sector, it is unlikely that Zimbabwe's problems will be solved because all they do in fact is that they reflect black market exchange rates, said Stephen Hank, a professor of applied economics at Johns Hopkins University in Baltimore.

Hank said the previous hypothesis of a dollar-1 (1-to-1) exchange rate was tantamount to science fiction, adding that the final decision officially said "we will overlook what happened anyway," which means officially: "We stole you."

The exchange rate of the new currency between banks is about 2.5 per dollar, according to data published on the website of the Central Bank.

The figure is not significant because authorities fail to disclose trade volume, according to the Market Watch Zimbabwe website, which is run by financial analysts.

The site estimates the black market exchange rate of the single "Bond Note" at 3.31 per dollar.

 

image.jpeg.27aa527ae79db636a78ad68b45e6bc11.jpeg

Zimbabwe's currency crisis is rooted in a tough land reform program launched by Mugabe in 2000, which has cut export earnings and hurt the government's financial resources.

In response to the situation, then Governor of the Reserve Bank of Zimbabwe, "Gidon Gonu," known as the "god banker" because of his close ties with Mugabe, increased the printing process of the Zimbabwe dollar significantly to pay government workers and provoke inflation and ultimately make his currency worthless.

Print Money

"It was a Ponzi scheme in the past," says economist and lecturer at the University of Zimbabwe, Ashok Chakravarty.

He continued: "Especially in the era of Gonu, where he continued to print money."

The collapse of the currency has led to the current impasse in Zimbabwe, chronic cash shortages and hyperinflation.

By the end of 2008, some Zimbabweans had returned to trade in exchange in conjunction with the recovery of illegal foreign exchange transactions.

In February 2009, the government's result was a shift towards the use of foreign currencies, especially the US dollar.

The dollarization process severely restricts the balance of the system, as you can not go to the central bank or any other government institution for government credit, Hank says.

Debt repayment

The pressure on government finances has been a cause for history to repeat itself, with a way out: the introduction of the "Bund Knot" and e-money domestically.

This has contributed to the growth of funds in circulation of more than 10 billion dollars, said the permanent secretary of the Ministry of Finance, "George Gofamanga."

That figure was $ 6.2 billion in 2013, says Tendai Betty, a prominent opponent and former finance minister.

"If you continue printing money, you destroy everything you make," Govamanga said.

Under the stabilization program set up by Finance Minister Mathouli Nkoubi last October, the government is now repaying local debts, stopped issuing treasury bills and does not have the possibility of overdrafts from the central bank.

This helped the economy move forward on a fixed ground, which is an effort to move in a different direction. It is an inevitable adjustment, "Chakravarty said.

"It is very unfortunate that this is the second time in 10 years that people have lost their savings. In 2009, our savings have all turned to zero, including me."

For some observers, the recent development is not a surprise discovery of fiscal discipline, but another recognition of failure and victims are the Zimbabwean people.

Savings = 0

For Betty, he says the new currency will fail because it is not backed by reserves, and Zimbabwe has reached the same starting point.

He added that the government had used a back door by reintroducing the Zimbabwean dollar, pointing out that this was a theft because the people reorganized and built their lives from scratch on the basis of the US dollar.

He explained that the best hope for the country is to join the common currency area of South Africa, which is dominated by South Africa and its local currency "Rand".

This would provide certainty for business and impose fiscal discipline on the government in exchange for current unsustainable arrangements, according to Betty.

"It's a Ponzi economy," he said.

 

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Inflation in Zimbabwe erases the value of savings

 
Agencies / follow-up
About two decades of corrupt monetary policies have destroyed Zimbabwe's economy, which has boosted rampant inflation, eroding people's savings twice.
Unrestricted inflation of 500 billion percent in 2008 caused the savings to be worthless and led to the cancellation of the local currency for the dollar the following year, according to a Bloomberg report.
In the year 2016, the former government of former President Robert Mugabe, who was in financial straits, introduced securities known as "Bond Notes", while maintaining their dollar-dollar trading.
In 2018, the government separated the cash deposits from the electronic currency in banks without reserves to support them, causing the collapse of the currency price on the black market (the informal market).
Last week, the Zimbabwean government admitted defeat and allowed the Bund Knut to trade within the market-defined range, which once again reduced the value of savings.
The decision came after the country in the southern part of Africa, facing shortages of bread and fuel from strikes and protests, as well as attempts by President Emerson Mengagawa to attract new investments.
According to Derek Matisak, a research adviser at the Zimbabwe-based Institute for Security Studies in Zimbabwe, the reason for all this is the currency crisis.
"This is similar to the creation of a giant Ponzi scheme that arose under Mugabe's leadership. What we are seeing now is that the Ponzi scheme is collapsing," he said.
Ponzi Scheme is a fraudulent tactic invented by Charles Ponzi, where he promises to give investors very high returns with low risk by providing returns to old investors through new people in a speculative system that continues until the bubble bursts.
 
«Hypothesis 1 to 1»
While the last step has been welcomed by the country's business sector, it is unlikely that Zimbabwe's problems will be solved because all they do in fact is that they reflect black market exchange rates, said Stephen Hank, a professor of applied economics at Johns Hopkins University in Baltimore. 
Hank said the earlier hypothesis of a dollar-1-to-1 exchange rate was tantamount to science fiction, adding that the final decision officially said, "We will overlook what happened anyway," which means officially: "We stole you."
The exchange rate of the new currency between banks is about 2.5 per dollar, according to data published on the website of the Central Bank. The figure is not significant as authorities fail to disclose trade volume, according to the Market Watch Zimbabwe website, which is run by financial analysts.
The site estimates the black market exchange rate of the single "Bond Note" at 3.31 per dollar.
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