With 75% of the transactions in the country now in United States dollars, Zimbabwe is now using a weighted average based on the use of the local currency and the US dollar to calculate inflation.
Annual inflation for February was therefore down to 92.3% down from 101.5% in January but month-on-month inflation was negative at -1.6% down from 0.7%.
Industry has expressed concern over the pace of dollarisation and has called for measures to promote the use of local currency.
It listed some of the costs of full dollarisation as:
- Economic contraction, as the country migrate to a high-cost economy which will make it difficult for local firms to compete on the international market;
- Curtailing the central bank’s lender of last resort function as it might not be able to act to assist banks in distress and avert financial system crises;
- Loss of Monetary Policy independence, especially the ability to influence the growth trajectory of an economy using the usual monetary policy tools;
- Huge current account deficits as it becomes cheaper for economic agents holding US$ balances to import.
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