Of Greece’s Bankruptcy and Mugabe’s Bravado

In the past weeks news has been of the collapse and bankruptcy of the Greek economy and its rescue by the European Union and the World Bank. At the same time, a year back, Zimbabwe was undergoing its worst inflation nearing 3000 percent. Zimbabwe, in spite the pressure from European and North American political and financial institutions did not declare bankruptcy. So what causes one country to declare bankruptcy at the faintest challenge while the other survives a long array of traps and pitfalls?

The history of banking and money changing shows clearly that money is a human creation, in the control of man and no supernatural forces beyond man can force down a currency or force it up. As early as the days of Christ, we learnt of his first confrontation in church with people changing money in His Father’s House. He overturned their tables. Banking, as it is today, dates back to the goldsmiths of England who received, receipted and kept gold in their safe vaults.

Receipts issued to kings and nobles for their gold are the first form of banknotes that existed. A goldsmith received 10 pounds worth of gold and issued a receipt to the depositor that he owed such an amount of gold indicated on the paper. Sometimes, the depositor did not come back for the gold in more than 10 years. Goldsmiths concluded that they could multiply receipts for gold and loan them out to merchants and businessmen in need of gold backing. Gold was the backing for all financial sureties. Goldsmiths went ahead to make interest on the gold deposited and on the receipts issued without backing.

When goldsmiths became prosperous, they proposed to the King of England to start the Bank of England. The king had to give his blessings for the institution to have a national dimension. The operator had to gather 1,400,000 pounds for the bank to go operational. But by the time the Bank of England was floated amidst noise of having a capital of 5 million pounds, the operator had not succeeded in assembling 500,000 pounds.

Lots of business persons came to this early Bank of England for loans to do their business. They were issued receipts of over 5 million pounds on which huge interest was made. In fact, there was no gold to back this amount. As skillful manipulators, bankers of the Bank of England like all banks today, were capable of fabricating positive balance sheets and showing the public and clients that their institution was afloat and fairing well. The central bank, which was the role played by the Bank of England, could mint and issue money freely and also withdraw such money when it deemed necessary. To pull a fast trick on its debtors, banks flooded the market with much paper money (receipts) with no gold backing. The result was inflation. During inflation, borrowers had to borrow more to complete projects. Unfortunately, bankers always made the race to complete engagements difficult by creating inflation. In this state of inflation, like the 1988 credit crunch, the population found out that they could no longer meet up with their engagements. The banks then came in and forfeited the properties, estates and belongings of borrowers, exactly the same way Americans lost their homes to mortgages through foreclosures.

You could be quick to call bankers scams, Shylocks or Jews. You are perfectly right. No bank opens for charity. All banks are highly interest oriented. All central banks have the power to issue money and withdraw it from circulation, when need be. President Ahidjo is reputed to have played those central bank tricks in the 1970s. He is said to have issued counterfeit notes when there was a liquidity crises (i.e. when people choose to bury money than to put it in the banks) and withdrew it at the level of the banks when there was too much money in circulation.

Greece may not have the leverage to issue and recall money because as a member of the European Union, it is expected to use the Euro issued by the union. What is difficult to understand is how Greece can declare bankruptcy while it is still producing the goods and services it has always produced. England seems to have been vindicated, after all, for refusing to dissolve the pound sterling in favour of the Euro. The same goes for Zimbabwe which has its own central bank issuing the Zimbabwean dollar. With the Zim-dollar, Zimbabwe could defy the rest of the world even when 1,000,000 dollar bills could not even buy a bag of sadza (corn flour transformed into a meal).

While fighting for monetary union, nations should be wary of selling their birth rights in exchange of regional solidarity. Money is just a receipt which gives the bearer the authority to purchase or get services worth the amount indicated. There is a common joke that whenever bamboo chairs will be considered as backing for money, bamboos will become scarce. Every country gives the value it wants to its currency and economy. Notwithstanding the embargo over Cuba, it is not bankrupt. The same goes for Haiti which has been punished by France and America for over two centuries, for daring to beat a white empire and gaining independence and teaching a bad example to other black slaves. Haiti is poor but not bankrupt. It is a wonder that the oldest democracy, the land of some of the best philosophers has chosen to forget the lessons that poor Robert Mugabe has mastered. Strong leadership yields strong currencies and economies.

Instead of declaring bankruptcy, a people should choose to throw of the yoke of oppression on their backs. When a government loses credibility, to the point of putting a countries economy and currency into question, it is but normal that such a leadership is rejected. Even when some African countries declared themselves Heavily Indebted Poor Countries, HIPC, they never declared bankruptcy. A currency is only worth what its minters want. Bravo Mugabe for pulling through an economic riddle.