Cabinet approves fresh de-dollarisation plan

CLOUDINE MATOLA AND TENDAIISHE NYAMUKUNDA

Cabinet has approved a fresh plan to abandon the greenback which is currently used in more than 80% of transactions, in favour of the new local currency, the Zimbabwe Gold (ZiG) backed by gold and other minerals that will serve as the sole legal tender in the economy, it has been learnt.

The latest development was revealed by the Information Minister , Dr Jenfan Muswere, this week.

He did not, however, give specific details regarding  the timeline,  but he indicated that Professor Mthuli Ncube , the Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, would soon provide the plan for execution.

The fresh plan comes after President Emmerson Mnangagwa last year in October, in a government gazette repealed the 2019 directive that set 2025 as the deadline.

The October law kept the multi-currency system, anchored by the United States dollar until 2030,  out of concern that the 2025 deadline would trigger uncertainty in the banking sector, with some banks refusing to give loans past 2025.

Zimbabwe has been using multi-currency for over a decade.

“On modalities to operationalise the ZiG currency as legal tender for use in the economy, a de dollarisation roadmap is now in place in-terms of the presentation with a timeframe by the Minister of Finance, Economic Development and Investment Promotion (Professor Mthuli Ncube)” Dr Muswere said.

Multiple economists and economic analysts yesterday told Business Times, a market leader in business, economic and financial reportage, that de-dollarisation may be difficult, largely   due to  how the market views the local currency.

“No economy that dollarised has ever managed to completely de-dollarise,” economist, Vince Muswere told Business Times.

He added: “However world-wide it appears that many countries are seeking to move away from the dollar, for example the BRICS. The question is will Zimbabweans ever fully embrace their own currency, especially the informal sector?

“The answer to that is NO. So formal economic policy is not necessarily in tandem with market sentiment in such a case a parallel market will continue to exist.”

According to Victor Boroma, an economic analyst, dedollarization might be  difficult to achieve as the  market is over 80% dollarized, meaning  buyers and sellers  have  more confidence in the  greenback  than they do in local currency.

Additionally, he stated that as long as public services are being paid for with US dollars, dedollarization will be difficult.

“Well, the de-dollarisation plan has been on the cards since 2015. It’s talked about in every monetary policy and most budgets yet the pillars that make a currency stronger do not exist on the ground.

“The fact that the economy is dollarised  to close to 90% shows the trust and confidence the market has over the US dollar more than the local currency.

“The government itself insists on US dollar payments on some public services and taxes which means that de dollarisation remains more rhetoric than. The country requires low levels of inflation (below 7%), an efficient forex market and an end to central bank quasi fiscal operations that keep causing higher prices and propping artificial demand for forex,” Boroma said.

Another economist, Chenaimoyo Mutambasere said the government needs to address foundational issues before they start to talk about the de-dollarisation.

“There is need to address several fundamental issues before we can build confidence in this new currency to support a dedollarisation programme.

“Firstly, the current economic environment is plagued by a myriad of headwinds. These factors severely undermine efforts to create an investable business environment. Without addressing these issues, it is challenging to build confidence and credibility.

“Moreover, the lack of improvement in infrastructure, combined with inadequate energy and water supplies, continues to stifle the country’s productive capacity. This situation hampers any potential increase in demand for exports, which is essential for a robust economy,” Mutambasare said.

She added:”To dedollarise now would mean injecting money into the economy without the necessary demand or productive value to support it.

“This scenario could lead to risk-averse investors and profit-seeking rent seekers exiting the economy, resulting in reduced economic activity and further depreciation of the local currency. No one wants to see their investments converted into a depreciating currency.”

Economist Prosper Chitambara, however, stated that while dedollarization is a good thing, the government must consult with the relevant stakeholders so that everyone is on the same page.

“It is a positive development, I think it is good to have a clear roadmap in terms of our de-dollarization journey but of course more importantly I think there is a need for a lot of consultations again with relevant stakeholders so  that at least we move together.

“I think that would be critical in terms of ensuring there is buy-in and support of those critical stakeholders. This roadmap is critical but let us move together again in the spirit of smart partnership and social dialogue.

 I think that will help in terms of ensuring the sustainability of this de-dollarization roadmap,” Chitambara said.

Persistence Gwanyanya, another economist and member of the Reserve Bank of Zimbabwe Monetary Policy Committee, argued that dedollarization is the proper course of action because dollarization is only a stopgap solution.

“The dollarization is the way to go because dollarization, like I’ve always said, is not a permanent solution to a country’s currency challenge. It is only a short-term measure. It can’t be expected to be permanent. At some point, the country should effectively de-dollarize,” Gwanyanya said.