Opponents of Zimbabwe’s reintroduction of a domestic currency often cite concerns about insufficient foreign reserves to cover imports. They also argue that the nation’s weak economic activity, low production capacity, and insufficient productivity make it unfeasible to sustain a local currency. Additionally, some push the notion that political reforms must come first to establish public confidence in any new currency. However, these arguments overlook critical economic realities and fail to consider the broader benefits of transitioning to a monocurrency.
By Brighton Musonza
The argument regarding insufficient reserves is based on a flawed understanding of Zimbabwe’s current economic predicament. Zimbabwe will never be able to accumulate the necessary 1.6 import cover while the US dollar remains the dominant domestic currency. The continued use of the US dollar facilitates significant capital outflows, as citizens can access global markets more easily. This results in substantial leakages, making it nearly impossible to build sufficient savings and foreign currency reserves. As long as the US dollar circulates widely, Zimbabwe will remain trapped in a cycle of dependency, unable to generate the reserves needed to stabilize the economy.
Another prevalent argument is that Zimbabwe must first strengthen its production capacity and productivity before introducing a domestic currency. However, this is unrealistic as long as the US dollar dominates local transactions. Dollarization encourages the influx of imports from more competitive economies, effectively undermining local production. The use of a strong foreign currency makes local goods and services too expensive to compete on the global market. Trade theory has long established that nations with weaker currencies are better positioned to export competitively. Japan, for example, maintains a low-valued yen to support its export markets, particularly in the automotive sector. For Zimbabwe, as long as key production inputs and agricultural outputs are dollarized, they will remain uncompetitive internationally, keeping the country in a state of economic stagnation.
The suggestion that Zimbabwe must first achieve sufficient production capacity before reintroducing its own currency is a classic case of the chicken-and-egg dilemma. It is not possible to build a thriving local economy without first establishing a domestic currency that serves local consumption needs. A robust economy requires demand for locally produced goods and services, and this can only be achieved through the use of a national currency. By focusing on job creation, increasing demand, and ensuring that wages align with production costs, Zimbabwe can create a more efficient economy. Monetary policy should prioritize employment, production, and low inflation—goals that are impossible to achieve in a multi-currency system where the government has little control over its own economy.
Zimbabwe’s inflationary pressures are not driven by traditional economic factors but rather by speculative arbitrage and manipulation of exchange rates. The current multi-currency system incentivizes currency trading over productive economic activities. Millions of dollars earned from gold mining, diaspora remittances, and other sources are often funnelled into informal businesses such as tuckshops and fuel service stations, many of which are controlled by politically connected elites. Instead of being invested in industries that could spur economic growth, these funds are used to purchase luxury goods or construct extravagant properties.
This informal economy, which thrives on the multi-currency system, is misleadingly being presented as entrepreneurship when in reality, it often contributes little to overall economic productivity.
Moreover, religious institutions have become an alternative to the formal banking sector, as many Zimbabweans trust churches more than banks to safeguard their cash. This dynamic further weakens the formal economy and contributes to the inefficiency of the financial system.
Those who argue that political reforms must precede the introduction of a new currency ignore the fact that Zimbabwe’s political elite benefit most from the current dollarized system. Individuals who control key sectors—such as fuel distribution and informal retail networks—are often deeply entrenched in the political landscape. These elites have a vested interest in maintaining the status quo, as they profit from the instability and inefficiency of the dollarized economy. Consequently, they resist any change that threatens their control over key economic sectors. And so long as Zimbabwe remains dollarized, political and economic reforms will remain elusive, with power concentrated in the hands of a few.
Dollarization has also disproportionately affected Zimbabwe’s rural population. While the US dollar circulates primarily in urban areas, rural economies are starved of the resources they need, particularly agricultural inputs. This creates a cycle of dependency, where rural communities rely on government food aid—a situation that benefits the same political elite who profit from dollarization. These rural populations remain impoverished, their economic potential untapped. A return to a domestic currency could help revitalize Zimbabwe’s agricultural sector and rural economy by providing access to markets and stimulating local industries.
A monocurrency would allow Zimbabwe to create demand for locally produced goods, gradually improving productivity and economic efficiency. As local production expands, employment opportunities would increase, broadening the tax base. This would generate revenue for critical public investments, such as the construction of new hospitals, the purchase of medical equipment like cancer treatment machines, and the development of schools. By returning to the basics of economic management and adopting a single currency, Zimbabwe can build a sustainable path toward growth.
In conclusion, there is no viable solution to Zimbabwe’s economic challenges other than a return to a monocurrency. The current multi-currency system perpetuates inefficiency, stifles local production, and supports unproductive economic activities. Only by introducing a domestic currency can Zimbabwe begin to follow sound economic principles, stimulate local demand, and foster long-term growth. Those who argue otherwise are missing the point entirely—Zimbabwe cannot continue to rely on a commodified exchange rate system that ultimately benefits only a small, politically connected elite at the expense of the nation’s broader economic potential.