HARARE,– Zimbabwe requires over $2.5 billion in foreign currency reserves to fully transition away from the US dollar, the government disclosed, challenging any near-term expectations of de-dollarization.
This announcement comes as President Emmerson Mnangagwa hinted at the potential phasing out of the US dollar if the new currency, Zimbabwe Gold (ZiG), remains stable and appreciates in value.
Last year, the government outlined a transparent plan to shift from the US dollar to mitigate exchange rate volatility. This strategy included introducing ZiG, backed by commodities and foreign exchange, in April. Treasury and the central bank were tasked with implementing policies to strengthen ZiG, aiming for its international acceptance and ultimately phasing out the multicurrency system.
However, the market has continued to favor foreign currencies, with many companies adopting the US dollar as their reporting currency even after ZiG’s introduction.
“There is approximately $2.3 billion in circulation, with about $2 billion in US dollars and $300 million in ZiG,” Finance, Economic Development, and Investment Promotion Deputy Minister David Mnangagwa said during the Institute of Chartered Accountants of Zimbabwe Winter School in Victoria Falls last Friday.
“To achieve 100% de-dollarization, we need at least $2.5 billion in reserves—whether in gold or cash—to cover all circulating money. If we increase our reserves to about $2 billion, we could immediately de-dollarize,” Mnangagwa added.
Initially, Zimbabwe planned to cease using the US dollar and other foreign currencies by 2025. However, this deadline has been extended to 2030 due to liquidity issues arising from the initial de-dollarization efforts.
Since ZiG’s introduction, the government has controlled the local currency supply to avoid inflation, resulting in a liquidity crunch and prompting forex holders to retain their foreign currency.
“We need to ensure the $2 billion circulating in the economy is accounted for by increasing our reserves to absorb the US dollar and ensure fungibility between ZiG and the US dollar,” Mnangagwa stated.
Currently, ZiG accounts for less than 20% of all transactions, with the US dollar remaining dominant, according to official statistics.
Mnangagwa emphasized that substantial reserves are necessary to absorb the US dollar and increase ZiG circulation to avoid inflationary pressures.
“If we boost our reserves to over $2 billion, we can stabilize the economy and facilitate de-dollarization,” he said.
Mnangagwa noted that additional measures to stabilize ZiG will be included in the upcoming 2024 National Budget review.
“Treasury and the government intend to implement a deliberate program to strengthen ZiG,” he said. “Expect robust measures in the mid-term review presented by Minister Mthuli Ncube next week to demonstrate our commitment.”
Source: News Day
