Reserve bank governor rules out dollarisation, blames exchange rate volatility on behaviours
Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya has ruled out dollarising the economy, blaming the current exchange rate volatility on behaviours and past experiences rather than economic fundamentals.
Mangudya said only 30% of bank deposits in Zimbabwe are in the local currency while the rest are in United States dollars. However, the Zimbabwe dollar accounts for most of the exchange rate movements.
He attributed this to “negative inflation expectations”, noting that Zimbabweans were “once beaten, twice shy” after the hyperinflation in 2008 and the currency reforms in 2019. Many Zimbabweans have lost trust in the local currency.
When people receive excess Zimbabwe dollars, they buy foreign currency on the parallel market, creating high demand and volatility. But Mangudya said this was a behaviour issue stemming from past experiences, not an economic problem.
Mangudya believes Zimbabwe has made progress in mining and other sectors and should not “throw the baby away with the bath water.” He urged Zimbabweans to embrace the local currency for development.
He ruled out dollarisation, saying Zimbabwe does not have the capacity as most foreign currency comes from mining exports, not the Zimbabwean economy. That foreign currency belongs to the exporters.
With the African Continental Free Trade Area, Mangudya said local firms would struggle to compete if Zimbabwe dollarises. He urged Zimbabweans to use the 25% of foreign currency that circulates within the economy to stabilise the exchange rate.