Zimbabwe is making progress towards enforcing the use of the Zimbabwe dollar as the sole legal tender, after 189 million transactions valued at $459,6 billion were completed using local currency last year.
This was said by Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya while presenting the 2020 Monetary Policy Statement yesterday.
He said the positive de-dollarisation taking place in the economy was encouraging, with key macro-economic indicators improving to support the move.
Dr Mangudya said complete de-dollarisation would be done gradually over a five-year period, based on other countries’ experiences.
This comes after the Government last year abolished the US dollar dominated multi-currency regime in use since February 2009 and reintroduced the Zimdollar, which had been scrapped after its value was ravaged by inflation.
While Government’s policy thrust is to switch the economy to the Zimdollar, some sections of the economy continue to charge in US dollars or alternatively index prices to the US dollar parallel market exchange rates, with the informal sector in particular guilty of this practice.
Dr Mangudya presented the Monetary Policy Statement to bank executives, economic analysts and the media, where he said de-dollarisation was a process and not an event.
He said the programme was on track based on encouraging economic signals of fiscal and monetary discipline, prospects for growth and falling inflation, which were improving to support gradual de-dollarisation.
Dr Mangudya said the proportion of foreign currency deposits to total money supply in the economy went down to 37 percent last year, while foreign currency denominated loans stood at 22 percent of total bank loans and advances in 2019, signalling the gradual shift towards mono-currency.
“The measurements of the proportion of the use of the local currency in the economy show that the country is on the right trajectory to de-dollarisation,” he said.
“The bank shall, therefore, continue to provide incentives to promote and defend the use of the local currency within the economy in order to support the de-dollarisation process.”
Dr Mangudya’s assertion was supported by economist Mr Eddie Cross, who said the country was on the right path to de-dollarisation given the number and value of transactions that were completed in Zimdollars last year.
“In the last year, $459 billion was paid through the electronic system, $459 billion; that must be about 80 percent or 90 percent of all transactions,” he said.
“Cash transactions were about 3 to 4 percent of that and the balance must have been US dollar transactions.
“What you can say is that 10 months after we de-dollarised, we are already over 85 to 90 percent local currency usage; that is actually quite dramatic. That is better than many countries that have gone through the same process.”
Countries that have successfully de-dollarised, Mr Cross said, include Israel, Bolivia and, partially, Argentina.
He said the public found transacting in US dollars to be more convenient than using wads of local currency dollars, which are also in short supply, while prices in US dollar terms appear reasonably low.
“People prefer to hold US dollars as a store of value,” said Mr Cross.
“We are stabilising the Zimbabwe dollar in exchange rate terms and we also stop inflation. I am told in January 2020 inflation was below 3 percent (monthly) and we were expecting 12 percent. We will be able to make people prefer to use Zimdollar.”
The central bank is reportedly working on a programme to deal with de-dollarisation of sections of the economy where players have continued to charge for goods and services in United States dollars.
Confederation of Zimbabwe Industries (CZI) vice president Joseph Gunda said given the flagrant disregard of the law by informal sector players, Zimbabwe was making little additional progress in efforts to dump the US dollar.
Mr Gunda said the situation on the ground painted a completely different picture, especially with regards to the informal sector where the US dollar continues to be the most preferred currency for transacting.
“I think the progress towards de-dollarisation is negligible, especially in the informal sector where you find that nearly everybody is charging in US dollars,” he said.