Zimbabwe Rules Out Return to US Dollar, Backs Local Currency

George Guvamatanga

HARARE (Bloomberg) –Zimbabwe’s government has ruled out adopting the U.S. dollar as its default tender again, saying it won’t repeat its past mistake of abandoning the local currency.

“One of the biggest mistakes was dollarizing and removing your own currency,” Secretary for Finance George Guvamatanga told business leaders Monday in the capital, Harare. “We will build this economy on the basis of the Zimbabwe dollar. The local currency will anchor this budget.”

Finance Minister Mthuli Ncube last week presented a budget that targets spending of 421.6 billion Zimbabwean dollars ($5.2 billion) next year, with a deficit of 4.9 billion Zimbabwean dollars. The government sees the economy rebounding to expand 7.4% in 2021 after contracting 4.1% this year.

Zimbabwe reintroduced its own currency last year, after a 10-year hiatus caused by the scrapping of the Zimbabwe dollar in 2009 following a bout of hyperinflation. The country used multiple foreign currencies during this period, with the greenback as the main unit of reference.

The central bank announced in June that it will introduce a foreign-exchange auction trading system, abandoning a peg of 25 to the U.S. dollar that was introduced three months before. The currency slumped about 70% before stabilizing at just more than 80 the greenback from September.

Inflation peaked at 837.5% in July and slowed to 471.3% last month. Price growth could ease to 9% by the end of 2021 due to exchange-rate stabilization measures adopted by the central bank, Governor John Mangudya said earlier this month.

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