Tanzania: Weak currency is biggest enemy

THE story of Tanzania’s shilling, its supply and value, can easily be likened to the short tale: “The Emperor’s New Clothes” by Hans Christian Andersen, a 19th century Danish writer of children’s books and social critic. In short, Tanzania’s money is a runaway currency that needs serious re-anchoring if all the aspirations for the country’s economic development are to be realised.

Andersen’s book is about an Emperor who was too engrossed with his appearance and clothing. The Emperor hired two tailors who promised him the best suit made from a material invisible to anyone who was unfit for his position or “just hopelessly stupid”.

The Emperor could not see the cloth himself, but pretended that he did for fear of appearing unfit for his position or stupid. His ministers also did the same. When the cheats reported that the suit was finished, they pretended to dress him and the Emperor then marched in procession before his people, who played along with the lie.

Suddenly, a child in the crowd shouted that the Emperor was naked as the whole crowd supported him. The Emperor shrunk, suspecting that the child was right, but held himself up proudly and continued the procession. Mwalimu Nyerere also once used this story in one of his many addresses to the nation. Simply defined, money is a commodity used as a medium of exchange that retains its own value.

Short of that, money becomes almost useless as a unit of account, especially so since all money today is fiat or paper money whose value depends on government order as “legal tender,” meaning it is illegal not to accept it for all transactions in a given country. A key feature of any legal tender is that its value must be perceived by its users to have the weight or value of the goods and services exchanged for.

Short of that, the currency is on a high inflationary rate and the economy in a state of recession. It is this kind of scenario that many serious minded economies usually fear. Faced with a high balance of payments deficit in 1971, former US President Richard Nixon formerly ended the direct convertibility of the US dollar to gold.

It was about the same time too that the shilling was plucked from the Sterling standard and pegged to the dollar because Tanzania too was experiencing economic problems of its own. But that never helped the shilling to retain its value. Many of the younger generation can probably never believe that the dollar exchanged for just five Tanzanian shillings.

However, the chaotic daladala commuter buses in Dar es Salaam are living testimony to those nostalgic days. The five shilling coin lost its par value against the dollar in massive devaluation and remained in circulation as bus fare only. The coin is almost no longer in circulation or at best, worthless.

One dollar today is close to Tsh 1,560, a figure that should probably send shockwaves to our macro-economics gurus, but alas, no one seems to care. Seasoned businessman Mustafa Sabodo has repeatedly said that the dollar could exchange for at least half of that amount, but again nobody takes him seriously. One thing is clear though. The shilling cannot be allowed to become a rogue currency.

Luckily, economic theory dictates that countries cannot go bankrupt. However, weak currencies are certainly a major stumbling block in efforts to make every man and woman earn a decent living. The people can be called all sorts of names, lazy, sluggish, complacent and many others but no growth is possible without a strong currency.

Evolving a strong currency is not the job of the common. It is the task of the guys working in very cool offices from the Bank of Tanzania (BoT) twin towers. True, market forces are beyond their control but monitoring the value of our currency is certainly one of their responsibilities.

BoT Governor Professor Beno Ndullu owes the people good explanation when the shilling tumbles to madness levels as it is currently behaving. If anything, we should have long ago become quite apprehensive with budgeting first in billions and now in trillions, which have very little corresponding value.

We of the present enlightenment, politicians, economists, journalists and others, have to see ourselves as the generation that will solve our poverty problem. We can only succeed if we see ourselves as part of the solution and not the problem. There is nothing beyond our control. All the levers of progress are within reach of our hands and if we don’t believe in that then we probably don’t deserve to occupy the positions we do.

The government has just announced a five year development plan but its goals would remain elusive without a steady currency. All that the people can deduce from the present behaviour of the currency is that the people charged with managing it are simply not serious.

If the kitchen gets too hot, it is better to get out! Unless financial services are unlatched to give access to more formal players in the economy, the shilling shall always remain an undermined currency. Looked at critically, we are probably our own enemies, pretending to be dressed in the finest suit whereas in fact, we walk naked.