eBusiness Weekly
Business Writer
THE Reserve Bank of Zimbabwe (RBZ) says its main focus currently is entrenching the prevailing macro-economic stability, largely seen since authorities began rolling out interventions mid-last year to calm the tumult that characterised most of the first half.
RBZ governor Dr John Mangudya told Business Weekly that the central bank was not overly concerned about currency issues at the moment; entailing whether Zimbabwe dollarises or dedollarise.
He said; “The bank’s main focus right now is about macro-economic stability.”
Mangudya said the Government’s preoccupation right now was for its arms to have “all hands on deck to stay the course” to entrench the obtaining stability, which has seen deflation in parts of the economy.
“What we have is called a trilemma; to say should we dollarise or de-dollarise while at the same time maintaining economic stability? So far this economy is very stable and we must stay the course,” Mangudya said.
Zimbabwe has seen rapid dollarisation of the economy, with a Zimbabwe National Statistical Agency (ZimStat) survey indicating that at least 76 percent of transactions were now conducted in forex, despite seeing a more stable domestic unit since mid-2022.
In light of the market dynamics where the bulk of transactions are now in US dollars, the central bank governor advised market players to shift focus to weighted average or blended inflation for planning purposes.
The new development was given legal force in Statutory Instrument 27 Census and Statistic (General) Notice 2023 recently gazetted by Minister of Finance and Economic Development, Professor Mthuli Ncube.
Until June 2023, Zimbabwe was rocked by exchange rate volatility and rapid inflation increase, which peaked at 38 percent per month and 285 percent in August this year, on an annualised basis, before a coterie of policy interventions held down its progress.
While authorities will need to prevent Zimbabwe from relapsing into full dollarisation, similar to what happened in 2009 and in light of liquidity issues associated with a currency the country does not produce and must earn, the central bank seems to be winning the war against inflation.
Official statistics show that the month-on-month inflation rate in February 2023 was minus 1,6 percent, shedding 2,3 percentage points on the January rate of 0,7 percent, the Zimbabwe National Statistics Agency (ZimStat) said.
Annual inflation for February 2023 also declined to 92,3 percent from 101,5 percent the previous month, the ZimStat said.
These inflation trends come after the central bank hiked interest rates to a record 200 percent, which has since been lowered to 150 percent, from 80 percent to stymie speculative borrowing while Treasury instituted the value for money audits to curtail inflation-induced forward pricing.
Further, the central bank introduced gold coins to mop up excess liquidity, which was believed to be contributing to exchange volatility and domestic currency depreciation, which helped to fuel inflation resurgence.
The central bank had sold a total of 25 188 gold coins worth $20 billion as at January 13, 2023. But while the domestic currency, which was restored in February 2019 after a decade-long inflation-induced hiatus, has relatively stabilised, the economy is witnessing increased dollarisation similar to what occurred in 2009.
Zimbabwe involuntarily adopted a multi-currency regime in February 2009, which was dominated by the US dollar, after it went through a phase of market-led default dollarisation as inflation took its toll on the economy.
One way to halt the rapid dollarisation, economists say, is to reverse the depreciation of the local currency, which was reintroduced at $2,5/US$1 in 2019 after a 10-year absence, and promote its desirability and wider use in the economy.
Economists say the Government should avoid the excessive flow of liquidity into the market to protect the local currency as well as make settlement of all statutory obligations in the local unit mandatory to promote its demand across the economy.
Commenting on the dynamics in the economy, Economist Eddie Cross said not enough has been done over the last three years to preserve the Zimbabwe dollar. “I do not think we, as a country, can really get back on our feet until we get our own functioning currency.
“That depends on us controlling the printing of money and holding that down to normal sort of levels, which is around the inflation rate and in addition making sure that people use the local currency as a first choice,” he said.
Cross said increasingly, Zimbabwe was gravitating towards the use of US dollars in local transactions, including the Government itself, due to the lack of durable stability in the local currency.
“I don’t think that is good.”
“The competitiveness of domestic industry depends on us having a functional local currency and until we get that right we are going to struggle to beat competition from outside the country,” Cross said.
