Government has to listen to economic actors and analyse trends in the market in order to create a market — determined transition that is ideal to foster confidence and eventual de-dollarisation that does not stand the risk of being rejected, according to some experts.
By Nelson Gahadza
This comes as Cabinet has approved a fresh strategic plan to abandon the US dollar, which is currently used in more than 80 percent of transactions, in favour of the newly created local currency, Zimbabwe Gold (ZiG), backed by gold and other minerals that will serve as the sole legal tender in the economy.
The timeframe for its implementation remains unknown, but the Government insists a de-dollarisation roadmap is now in place and will be presented by the Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube.
Experts who spoke to Business Weekly highlighted that, against the backdrop of historical circumstances, a careful and well-thought-out transition that will not negatively affect the market will be ideal.
Former State Enterprises and Parastatals Minister during the Government of the National Unit, Gorden Moyo who is now a lecturer at Lupane University, said the Government should be very careful about its plans to de-dollarise because, in the first place, dollarisation was not introduced by the Government but only confirmed it.
“Dollarisation was introduced by the market, demand, people, consumers and industry because at the time the Zimbabwe dollar had become moribund, so it was the market.
“Government has to listen to the market and analyse the trends in the market in order to reintroduce its currency properly and get rid of the US dollar properly,” he said.
He noted that when the Government presented its plans to de-dollarise a few weeks ago, the market reacted and already a number of companies and retailers are no longer taking the ZiG, giving excuses of being offline most of the time.
“Most retail outlets around the cities will tell you that they are offline, and this started when the Government issued a statement that it was going to dedollarise the economy, and that statement of intent has motivated the market to reject the ZiG as they are afraid of the law.
“Government should be careful on how to do it and even some of these things have to be done silently without disrupting the market,” said Moyo.
De-dollarisation is a process of reducing reliance on the US dollar as the main transacting currency to the newly introduced ZiG.
Finance, Economic Development and Investment Promotion permanent secretary, George Guvamatanga, in April 2024 said de-dollarising the environment is a gradual process betting on high demand for ZiG. Under the roadmap for de-dollarisation, the central bank is aiming to boost the value of ZiG transactions in the economy from the current 20 percent to 50 percent by 2026.
According to Moyo, de-dollarisation cannot be done overnight or even as a five-year project, as the dollar has been there for close to 24 years, even though officially maybe it started in 2009.
“To think that by the next five years or by 2030 the dollar will be out and ZiG will be strong is not possible; hence, more time is needed, and it’s not just a monetary issue but includes fiscal, political and governance reforms that can be achieved through a structured dialogue platform,” he said.
He added that if Zimbabwe needs to be dollarised, it must give credence and priority to the structured dialogue platform to resolve the matters of governance reforms, monetary reforms and the land tenure issue.
“These are part of the menu to bring back the economy because in Zimbabwe, the issue of currency is not just a monetary issue; it is part of a broader economic crisis that the country has,” he said.
Bankers Association of Zimbabwe (BAZ) recently said a gradual, careful and well considered dedollarisation plan will be ideal to ensure a successful transition.
Business also highlighted that dollarisation was in the first place a result of economic circumstances; hence, an immediate de-dollarisation plan would be potentially inflationary and bring back the “circumstances”.
According to Moyo, for the plan to work, the Government and monetary authorities should bring trust and confidence in the financial services sector in order to be trusted by the citizens.
“Currently the level of trust is at its lowest as people do not trust the Central Bank and their banks, so the government should help the sector to be trusted. This can be done by ensuring the funds people deposit in the banks or are already in the banks accrue interest rather than charges, and the more people get the interest, they will start to develop some level of trust.
“Without the trust, there is no way people will adopt or use the ZiG as the preferred currency. It is important that the bankers are engaged by the government and serious agreements be put in place to ensure that bankers are not supper profiting from the funds that get to their banks,” he said.
Moyo noted that local currency should also be backed by productivity, as it is not enough to say the ZiG is supported by gold and other minerals alone.
“Gold is not in the streets of everybody but is supporting the currency as far as the Central Bank vaults are concerned.
“But production, manufacturing, and processing across the country will then strengthen the ZiG because the economy’s four cylinders will be firing.
“Therefore, it is important for the government to prioritise production and job creation in order to strengthen the ZiG in order to provide trust in the local currency,” he said.
Investment analyst, Enock Rukarwa, said strategically for sustainable economic growth and economic development, de-dollarisation is the way to go.
However, he said the biggest challenge around this project is when to implement it and how.
“Timelines cannot be determined scientifically but should be inspired by market confidence and natural adoption. For example, in 2009-2011, the adoption of multicurrency was largely a market-driven process which was later legislated as opposed to a predetermined plan,” he said.
He noted that the fundamental argument for de-dollarisation is monetary policy control and associated economic merits; however, in the past, pure local currency usage has been characterised by inflationary pressures and exchange rate volatility.
Zimbabwe used the multi-currency regime between 2009 and 2019 and thereafter a combination of foreign and domestic currencies as it explored various options for currency stability.
Already the use of multicurrency was extended to the 2030 deadline, which brought confidence to the market; however, the possible adoption of the ZiG as the sole currency is aimed for as early as 2026.
Victor Bhoroma, an economist, said a lot of countries, such as Israel and Georgia, went through comprehensive de-dollarisation plans and were successful.
“If you look at the patterns on how they de-dollarised, there are similar circumstances that were followed. For the plan to work, there should be money supply control to such a level that the inflation rate is a single digit.
“If the central bank can consistently control the money supply for at least a year with a single-digit inflation, that will create some level of confidence as stable inflation brings confidence.
“It takes away artificial demand for foreign currency because most of the demand in the market is artificial because these are economic players that are trying to hedge against loss of value,” he said.
He added that low levels of inflation are also good for creating savings and also ensure that the credit market can be resuscitated because currently Zimbabwe does not have credit facilities in local currency.
“The central banks should have reserves in hard currency, which should be auditable and authentic, such that when there is a need, for example, a market failure, the central bank can be able to use open market operations either to sell gold, sell and buy paper, or buy bonds in order to manipulate the market towards desired objectives because the idea is to have a managed floating exchange,” said Bhoroma.
He indicated that if the government is sincere, the plan can be implemented and start immediately, which means that if there is control in terms of money supply, it does not take three months to be able to see the effects in the market.
“If the central bank controls quasi-fiscal activities, the market will respond. Confidence building and economic stability take time, but players in the market should be able to see the sincerity and genuine of fiscal policy, but in 3 to 10 years, should there be policy consistency, political stability, and good governance, the plan will work,” he said.
But Vince Musewe, another economist, noted that very few countries that dollarised managed to completely de-dollarise.
He said currency value is based on consumer confidence, and if that is lacking for any reason, people will continue to prefer the USD.
“Of course we need our own currency, but conditions have to be conducive both politically and economically,” he said.
He added that whenever there are two competing currencies, the USD will always win, and what has limited a complete revaluation of the ZiG is a lack of liquidity, not confidence, which continues.
“We are bound to see things get worse before they can improve, and that improvement will be hugely influenced by the political temperature in the country,” said Musewe.
Dr Prosper Chitamba, adding to the conversation, said de-dollarisation should be a market-led process and not necessarily a government-driven process.
“When I say market-led, it must be based on the attainment of key macroeconomic benchmarks, such as sustaining a low and stable inflationary environment over time. It also includes building adequate reserves for exchange reserves,” he said.
Rufaro Hozheri, posting on his X handle, said the more users of the currency are incentivised and convinced to use the currency, the less it becomes difficult to dollarise.
He said the stability of the local currency also becomes key, as does ensuring that the exchange rate is market-determined to avoid arbitrage.
“Ending dollarisation can never be an emotional decision; it can only stand a chance if at least the mentioned pillars are satisfied, but even so, there is no guarantee. For a currency challenge that has plagued the country over a long time, the solution might need to be well thought out instead of something reactionary,” he said.
Source: Business Weekly