Dollarisation juggernaut rolling on

The market has spoken and it is most certain that nothing, not even propaganda, will stop the dollarisation juggernaut.

Last week, the central bank cut the interest rates to 150% per annum from 200% in line with inflation developments after the country’s former number one enemy declined.

Interest rates had been hiked to 200% from 80% in July as the central bank moved to halt speculative borrowing blamed for fueling the parallel market exchange rates as the local unit took a battering against major currencies.

However, the high interest rates meant that companies could not borrow at such a cost as they could not pass on that to the customer.

The productive sectors of the economy were starved and the unintended consequences of such a policy, as the central bank admitted last week, was that it saw a shift to foreign currency loans.

This saw the proportion of foreign-currency denominated loans growing, resulting in the banks’ loan book dominated by foreign currency loans.

Statistics from the central bank showed that the proportion of foreign-currency denominated loans grew to 64.2% in December 2022 from 37% in December.

In the economy, the use of foreign currency transactions has increased, throwing into disarray the government’s push to make the Zimbabwe dollar the currency of choice.

The United States dollar has become the currency of choice, despite a modicum of stability with annual inflation on a downward trend in the past five consecutive months. In the informal sector, the dollar is the only currency in use.

In the formal sector, employers are demanding to be paid salaries in US$ taking a cue from the government which is paying its employees an allowance in the greenback.

The pricing by some formal businesses is in dollars only despite insistence by the government of the existence of the dual currency regime.

While there are some businesses that are charging in local currency, the pricing is out of this world. One can buy the US$ on the parallel market and still buy in the informal market at a cheap price.

The message has been clear: the proposed dedollarisation programme has all but failed. Authorities allowed the US$ to work alongside the Zimbabwe dollar hoping the local currency would, in future, remain the sole currency.

Local currency investment assets are being shunned as individuals and businesses opt for gold coins, which were introduced to mop excess local currency balances.

The central bank has said it will continue issuing the gold coins until when stability starts to create a high appetite for business and consumers to hold domestic currency denominated assets.

The dollar is preferred as it is a stable currency and a store of value, characteristics the local currency does not have.

For the government that was hoping for the local currency to remain a sole choice, it is too late.

The authorities are closing the stable when the horses have bolted. The market has spoken and it wants the dollar.