Sunday, 20 April 2008

Equilibrium for Zimbabwe

Equilibrium for Zimbabwe will come about when Zimbabwe copies Brazil and implements a Zim non-monetary index unit or Zim Real Value Unit based on the proven and very successful Brazilian Unidade Real de Valor that allowed Brazil to have a stable and growing economy in non-monetary items which gave them time to sort out how to kill cash hyperinflation in their money.

This is not a theory. It is an historic fact. It was a proven and very successful practice implemented in the 180 million people Brazilian economy.

What is required in Zimbabwe are two elements: a stable non-monetary index unit and a daily rate between the ZimDollar and this stable Real Value Unit.

The Zim Real Value Unit already exists. It is the USDollar.

The USD is a monetary item and the Zim Real Value Unit has to be a non-monetary index. That is correct. It is also true that the USD is 2% away from being a 100% stable index unit. 2% is nothing in the current hyperinflationary chaos in Zimbabwe.

The USD is the Zim Real Value Unit. Every non-monetary item in Zim is given a USD price. That is done by dividing the current ZimDollar purchase price or valuation of any Zim non-monetary item by the current Real Value Unit rate. Or it is simply given a USD price.

Now a a single daily Zim Real Value Unit rate is needed.

That also exists. It is called the Old Mutual Implied Rate. There are many parallel rates in Zimbabwe every day. Everybody haggles to get his or her best rate for his or her deal. So there are many, many USD parallel rates. There is no single USD rate for the whole country because the ZimDollar is not yet floated by the Reserve Bank of Zimbabwe.

The Old Mutual Implied Rate is calculated by dividing the Zimbabwe Stock Exchange price of the Old Mutual share by the London Stock Exchange Price for the same share. The answer is the Old Mutual Implied Rate for the Pound. Then a cross rate calculation is done for the USD rate.

That is the Old Mutual Implied Rate for the USD in Zimbabwe. A single rate is calculated by using the daily closing prices.That can be used as the single Real Value Unit Rate for the whole of Zimbabwe. There is no doubt about the daily closing rate when closing prices are used.

That is the equilibrium solution for Zimbabwe.

How will the OMIR be used for salaries. The worker and employer determine the salary in USD. Say USD 100 or USD 1000 or whatever the USD salary is. It will not change for a whole year in USD value.

Every time the salary is paid it is paid at that day´s OMIR. As prices go up the OMIR will go up and so will the salary. A worker will always receive the same salary in USD equivalent value.This way salaries and prices are linked.

This way all non-monetary items in the whole Zim economy are linked, just like with the Brazilian Unidade Real de Valor.

The Zim economy will return to being a stable economy in non-monetary items. Cash inflation will still depend on the strenght or weakness of the many underlying value systems in the Zim economy, namely the monetary system, economic system, banking system, government, justice system, education system, defence system, industrial policies and systems, etc, etc.

The Zim Real Value Unit will kill non-monetary inflation in all non-monetary items since they will all be valued at exactly the same Zim Real Value Unit rate.

The Zim economy will stabilise and the government and monetary authorities can work on the problems to kill cash hyperinflation in the ZimDollar.

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