Zimbabwe’s government has set a deadline of December 2025 to phase out the use of the US dollar in the economy, but many citizens and businesses are reluctant to embrace the local currency, the Zimbabwean dollar, which has a history of instability and hyperinflation.
According to the National Statistics Agency, the US dollar accounts for 80% of all transactions in Zimbabwe. It is used to pay for everything from fuel and food to medicines and taxes. Its circulation in the country is guaranteed in law until 2025.
However, the government wants to promote using the Zimbabwean dollar, which was reintroduced in June 2019 after a decade of dollarization. The authorities argue that having a sovereign currency is essential for economic growth and development.
The central bank has introduced several measures to support the local currency, such as limiting its availability, creating a foreign exchange auction system, issuing gold-backed digital money and coins, and tightening monetary policy.
The Zimbabwean dollar has appreciated by about 26% against the US dollar since July 2023, when the auction system was launched. The annual inflation rate declined from 785.6% in May 2020 to 18.4% in September 2023.
However, these achievements have not convinced many Zimbabweans to trust the local currency, which has lost more than 87% of its value since its reintroduction. Many still prefer to save and transact in US dollars, which are more stable and reliable.
Imara Asset Management, the country’s largest independent asset manager with over $100 million under management, told clients that the US dollar will remain the dominant currency in Zimbabwe for a long time.
“We are making the bold assumption that the US dollar will remain in place for a good while yet,” wrote John Legat and Shelton Sibanda, the company’s chief executive officer and investment officer. “The loss of the use of the US dollar would be a disaster for the economy.”
The International Monetary Fund (IMF) has also cautioned Zimbabwe against its plan to end dollarization, saying it could disrupt economic stability and confidence. The IMF urged the government to focus on liberalizing its exchange rate, strengthening its fiscal position, and implementing structural reforms.
Finance Minister Mthuli Ncube said last week that the government was “mulling over” the next steps on the currency policy. He said the authorities would not do anything that would jeopardize the economic growth that has been achieved so far.
Zimbabwe’s economy is projected to grow by 5.3% in 2023, up from 4% in 2022, driven by a strong performance in agriculture, mining, tourism, and electricity.
Source: Business Insider Africa
