Zimbabwe Finance Minister Mthuli Ncube yesterday told Parliament that the country was not going back to using the United States dollar as the sole currency because it was a very bad idea.
Responding to a question on what the country was doing to curb the black market, Ncube said the government and the central bank had adopted several measures to curb the black market and to promote the use of the local currency.
“I want to be clear, we are not US dollarising. We will not US dollarise. US dollarisation is a very bad idea,” he said.
“The reason why our industry is performing well, the utilisation is up there……is because we have a domestic currency. It has made our economy to be competitive; we cannot use the US dollar as a sole currency. That will be a very bad idea indeed.”
Several economists have said that Zimbabwe will be forced to dollarise because of its declining local currency. One said it would dollarise by June while another said elections will force the country to dollarise.
The Zimbabwe dollar is currently pegged at $124.02 to the United States dollar. The black market rate is almost twice that.
Citizens Coalition for Change vice-president, Tendai Biti, who was Finance minister from 2009 to 2013 had predicted that the local currency will fall to $1 000 to one by the end of the year.
HON. CHIKWAMA: Thank you Madam Speaker. My question is directed to the Minister of Finance and Economic Development. Do you have any mechanism or plan which reduces black market exchange rate? Most shops in rural areas are using the black market rate on their pricing. As a result, the prices are very high and cannot be afforded by the rural people. Thank you.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): Thank you Hon. Member for that very important question. The issue of the value of our currency is important and as a Government, we have tackled through a package of measures. The first order of business is through fiscal discipline, which tries to ensure that we do not end up printing money to support an excessively large budgetary deficit. We have been much disciplined in that and we thank this august House for supporting us in that fiscal discipline agenda. When it comes to the Central Bank, because there must be coordination between fiscal and monetary policies – Central Bank has put in place a framework where they target the quantity of money in the economy. Currently, we get about 10% per quarter, which has just been reduced to 7½% growth per quarter. That is very important. They also mop up excess liquidity within the banking sector, through what we call the Statutory Reserves Requirement Programme, where they mop up liquidity and make sure it is not over-linked for currency speculation.
Coming specifically to the use of the domestic currency, we have announced policies in the last couple of weeks both on the fiscal and monetary front for promoting the use of the domestic currency. For that, we have basically said that from now on, you only need to pay up to 50% in hard currency and the rest is in domestic currency. Companies have been given a similar leeway when it comes to payment of corporate tax. We are accepting a portion in domestic currency to promote the use and demand for our own domestic currency.
Now, coming to those who are breaking laws and not pricing their goods at the auction rate, we have a Financial Intelligence Unit. If they are stretched, we are supporting them in hiring more personnel so that they can get to those rural areas where the Hon. Member mentioned to enforce the law in terms of compliance. You will see in the last few weeks, a few people and a few companies being mentioned in the media that have been fined for using the black market rate in the pricing of their goods. This is hurting our ordinary citizens. As Government, we are aware of this. We deployed – we do not condone it and we are enforcing the law to make sure that they comply. We believe that all these measures put together with the administrative, economic and so forth, this package will go a long way in strengthening our currency.
I want to be clear, we are not US dollarising. We will not US dollarise. US dollarisation is a very bad idea. The reason why our industry is performing well, the utilisation is up there, the house of souvenirs is because we have a domestic currency. It has made our economy to be competitive; we cannot use the US dollar as a sole currency. That will be a very bad idea indeed. I thank you.