Calls for full-fledged dollarisation grow

LIVINGSTONE MARUFU

Analysts are calling for full-fledged dollarisation saying the greenback has been ‘king’  of local commerce.

It follows the local currency, the Zimbabwe Gold (ZiG), falling to record lows in relation to the US dollar.

According to them, the introduction of ZiG was hurried since it lacked the fundamentals needed to support it in light of the numerous difficulties and factors that it has encountered over time.

Economic analyst,Victor Boroma , told Business Times, a market leader in business, financial and economic reportage, that the market has rejected  ZiG.

“In reality, the economy is already self dollarised and  it’s only the government resisting for obvious reasons that the central bank printing press will be rendered obsolete if formally dollarised. In the short term, dollarisation can cure the disease of money printing at the central bank while reducing inflation to a single digit. “The country can actually experience deflation within 12 months of dollarisation as current United States dollar prices are inflated due to harsh legislation.

“Dollarisation will also help stabilise demand and supply in the formal sector, especially, the  Fast Moving Consumer Goods sector. It will also improve bank lending, capitalisation and real savings in the economy,” Boroma said.

Economist Vince Musewe,said weighed in saying:  “The economy is already and de facto dollarised. 90% transactions are in United States dollars. Formal policy is guided by the informal market and must catch up,” Musewe said.

Yet another economist, Professor Gift Mugano said:

“In the short term, let’s go the dollarisation way to cut on high  volatility and inflation,” he said.

“In the absence of at least US$2.5bn, de-dollarisation is impossible which means that ZiG will not make it. From a definition of point of view, the economy is dollarised.  There is so much excessive liquidity which is being pumped into the market by the Treasury through payment of contractors and civil servants. “

Yet another economist, Tony Hawkins, said  the government has to be clear on dollarisation as allowing the two currencies to work together will result in the devaluation of the ZiG which is the weaker currency.

“Government still has to choose between redollarisation and dedollarisation rather than to run the dual currency system which will lead to the rejection of the ZiG. Government  is   too scared to choose, which means there is no clear plan  on what the country is doing in putting in place stronger fundamentals to defend the ZiG  or  completely redollarise  to stabilise the volatile market,” Hawkins said.

However, economist Dr Prosper Chitambara said multi-currency was the way to go.

“Full fledged dollarisation has  its fair share  of advantages  and  disadvantages  but I think for now I will advise for the continuation of  multi -currency system or dual currency framework then address some of the structural issues around fiscal and monetary discipline and also push key institutional reforms that will be critical in sustaining the local currency and sustain the economy. Full fledged dollarisation will stabilise the economy but there are limitations on  the central bank as it will not be able to deploy the monetary policy to influence macroeconomic aggregates.  I think for now let’s continue on this current regime but try to address some of the structural  issues behind this volatility, especially unsustainable growth in money supply and public spending.”

The Zimbabwe National Chamber of Commerce president  Tapiwa Karoro  concurred with Dr Chitambara saying: “A complete abandonment of our local currency will not solve our macro and micro economic challenges. The competitiveness of local businesses within the local and export markets will always remain on the back foot if we operate in a 100% dollarized environment. For now we have a clear statutory position that the prevailing multi-currency regime will remain until 2030. Let us allow the monetary and fiscal authorities, guided by the market, to fully develop and implement policies that mitigate the market distortions caused by currency volatility,” Karoro said.