The Tanzanian Model



Incumbent governments generally don’t like it when citizens stop using the local currency of favor of foreign alternatives.  Not only is it a blow to prestige, practically advertising the local sovereign’s ineptitude, but the state suffers financially as well, as its recourse to seigniorage, or the inflation-tax, erodes as a means of financing its budget.

So it’s not all that surprising that a ban on the use of foreign currencies was purportedly a deathbed command of Kim Jong Il. As we predicted, he seems to have had a lot of such dying wishes. Nor was it hard to predict that this ban has proved difficult, if not impossible to enforce: the DailyNK has reported the continued use of foreign currencies in the market. We’ve seen this movie before. Even with North Korean subtitles.

What is more curious is a tidbit that Our Man in Seoul, Dan Pinkston, of the International Crisis Group, passed along, a piece in KCNA flogging Tanzania’s (?!) currency ban.  So first the KCNA piece, and then the commentary:

“Tanzania Reiterates Ban on Foreign Currency Use in Domestic Transactions

Pyongyang, May 29 (KCNA) -- Tanzanian government has reiterated its resolve to ban the use of foreign currencies, especially the U.S. dollar, in buying and selling goods and services in the country, local media reported on May 24.

"It is not allowed for people and businesspeople to use foreign currencies in buying and selling goods and services in the local market," said the deputy finance minister Janet Mbene in Arusha, northern Tanzania.

"We are studying the trend and we'll talk to the business community involved in such businesses and encourage them to start using our Tanzanian shilling instead of the U.S. dollar in their transactions," she was quoted by the Guardian newspaper as saying.

The official when opening a two-day seminar on financial markets and financial institutions said transaction in foreign currencies in local market contributed to the devaluation of the Tanzanian shilling against major international currencies.”

Dollarization is indeed an issue (although not a front-page issue) in Tanzania, as it is in a number of other countries in the region such as Malawi, Angola, and Mozambique. But as one of our South African friends observes, “since it is a case of good money chasing out the bad it is not obvious what the governments concerned can do.” So the obvious story here is that the government of North Korea (or at least the editorial board of KCNA) is sufficiently concerned about the foreign currency ban, that it is willing to reach all the way to East Africa, to find legitimating cases. The KCNA message is that foreign currency bans, are normal, typical, everyone does it—not something unusual that our government is trying to impose on you, our readers.

But what if—as my colleague Steph Haggard wondered—the North Koreans were literally studying the Tanzanian model?  The first time that I ever publicly presented a paper on the North Korean economy, the inimitable Tony Namkung launched into a tirade during the Q and A session.  At one point in the paper I had presented data showing that in structural terms North Korea more closely resembled Belarus, Slovakia, and Romania, than it did China or Vietnam at the time that each of those countries launched their respective reform processes.  Tony ended his rant by delivering what he believed to be the coup de grace: “They [the North Koreans] ain’t no Slovaks!”

In the intervening years, North Korea has experienced famine and flat-line per capita income growth, while Slovak per capita income has doubled. Tony, wherever you are, you are right: they ain’t no Slovaks.

But are they Bantus? Well, the chart below suggests maybe not:

So maybe Haggard is right: they should be studying the Tanzanian model!

As for me, when it comes to Tanzanian models, my preferences run more towards Millen Magese. ;-)

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