Categories: Stories

Zimbabwe industry calls for increased use of local currency – says full dollarisation not good for the country

Zimbabwe’s industry has called for measures to promote use of the local currency saying while full dollarisation will completely eliminate persistent inflation challenges being faced by the country, the cost of full dollarisation tends to outweigh the benefits. 

The Confederation of Zimbabwe Industries said the government had given the wrong signal to the market because it appeared that the government was more determined to get the United States dollar at the expense of its own currency.

“If the policy objective is still to ensure that the ZWL$ does not lose relevance in this environment of accelerated dollarisation, the following, if implemented as a package, could help,” CZI says.

  • Migrating certain taxes to being payable only in local currency. PAYE would be a good start as this would bring many institutions including foreign missions, into the foreign exchange market as sellers.
  • Full liberalisation of the Willing Buyer Willing Seller (WBWS) to make it a market determined exchange rate. Stability of the exchange rate will be a game changer, as it will eliminate inflation and stabilise the local currency.
  • Smoothening of Government Ministries’ payment methods, to avoid liquidity disruptions from simultaneous payments at some specific point due to delays;
  • Tight money supply control, including both narrow and broad money.

The industrial body listed some of the costs of full dollarisation as follows:

  • 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.

Zimbabwe reintroduced the local currency in October 2018 saying it was at par with the United States dollar but it began losing value immediately.

The situation got worse in June 2019 when the country outlawed the use of multiple currencies but it was forced to restore their use until 2025 but the damage had already been done.

The central bank now says more than 70% of the transactions in the country are in United States dollars.

The interbank rate is currently at $871.14 while the black market rate is as high as $1 300.

Continued next page

(134 VIEWS)

Page: 1 2 3

Charles Rukuni

The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

View Comments

Recent Posts

Reserve Bank of Zimbabwe expects more foreign currency sellers to join the interbank market

The gazetting into law of the payment of quarterly taxes on a 50-50 basis in…

December 4, 2024

Zimbabwe 2025 citizens’ budget

Zimbabwe has today unveiled a ZiG276.4 billion budget for 2025 during which it expects the…

November 28, 2024

To go or not to go- Mnangagwa in a quandary

Zimbabwe President Emmerson Mnangagwa has repeatedly stated that he is not going to contest a…

November 25, 2024

ZiG loses steam, falls against US dollar for five consecutive days

The Zimbabwe Gold fell against the United States dollar for five consecutive days from Monday…

November 22, 2024

Indian think tank says Starlink is a wolf in sheep’s clothing

An Indian think tank has described Starlink, a satellite internet service provider which recently entered…

November 18, 2024

ZiG firms against US dollar for 10 days running but people still do not have confidence in the currency

Zimbabwe’s new currency, the Zimbabwe Gold (ZiG), firmed against the United States dollars for 10…

November 16, 2024