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CZI: Urgently Restore Zimbabwe Dollar

CZI: Urgently Restore Zimbabwe Dollar

The Confederation of Zimbabwe Industries (CZI), has urged the government to take measures to urgently restore the function of the Zimbabwe dollar.

The Zimbabwe dollar was reintroduced in June 2019 after being ditched for a decade and it has been shedding value since then raising fears that it will collapse for a second time, according to Business Weekly.

CZI says the Zimbabwe Dollar is now at the periphery of the bulk of transactions in the economy as it continues to lose value against other currencies hence the need to find measures to restore its functionality.

In a research paper titled “Inflation and currency developments” released earlier this month CZI, said a recent report by ZIMSTAT indicated that on average, about 77 per cent of transactions were now executed entirely in US dollars. CZI said: 

Zimbabwe is in a multi-currency regime and the policy stated goal is to move to a mono-currency regime.

However, Zimbabwe is slowly but surely moving towards full dollarisation. While full dollarisation will completely eliminate persistent inflation challenges being faced by Zimbabwe, the cost of full dollarisation tends to outweigh the benefits.

While controlling Zimbabwe inflation remains the only way to enhance the store of value function, there is an urgent need to at least restore the function of the (Zimbabwe dollar) as a medium of exchange.

Currently, there is no demand for the local currency, especially among those that earn foreign currency, as the dual economic nature of Zimbabwe means that they can do all transactions in US dollars.

The main reason why the efforts aimed at ensuring stability have failed is that the efforts are mainly targeted at the supply side, especially controlling money supply growth and managing Zimbabwe dollar liquidity.

However, these efforts also need demand side management policies to succeed. Currently, there is not much being done on the demand side, which could see any business seeing the need to hold on to the Zimbabwe dollar.

The industrial lobby also said:

1). full dollarisation could cause economic contraction, as the country would have migrated to a high-cost economy, which will make it difficult for local firms to compete in the international market.

2). full dollarisation would curtail the central bank’s ability to act to assist banks in distress and avert financial system crises.

3). adopting the US dollar as the sole transaction currency would lead to a loss of monetary policy independence, which entails the ability to influence the growth trajectory of an economy using the usual monetary policy tools.

4). the negative impact of the US dollar monetary regime could drive the economy into huge current account deficits, as it would inevitably become cheaper for economic agents holding US dollar balances to import goods into the country.

CZI added that the current Willing Buyer Willing Seller (WBWS) platform was also failing to serve as a market-based platform because willing buyers were unlimited while there was a shortage of willing sellers on the platform.

Measures to protect Zimbabwe dollar currency

CZI suggested migrating certain taxes to being payable only in local currency.

It also recommended the full liberalisation of the forex exchange.

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