A series of “very nasty” events, including the wiping out of bank balances, will occur if government bows
to uninformed pressure to abolish the use of the Zimbabwe Dollar in favour of the United States Dollar, a Cabinet Minister said on Tuesday.
Eager to see the collapse of the local currency, calls have grown, from many quarters for the government to abandon the Zimbabwe Dollar in favour of the USD, which was previously the dominant legal tender during the multi-currency era.
But, Finance and Economic Development Minister Professor Mthuli Ncube, warned of catastrophic consequences if Zimbabwe turned to the single use of the USD only.
Some of the immediate consequences, he said, included the immediate collapse of the Zimbabwean banking and manufacturing sectors.
“Something very nasty is going to happen. As a minimum, four things will happen, one you will wipe out the entire banking sector, because you have to convert their Zimbabwe dollar balances into US dollars. The banks will have negative balances, we will have a crisis, we will have no banking sector,” he said during a question and answer segment of the post Cabinet briefing.
“Number two, very quickly we will have a cash crisis because we cannot print the US dollar and we will have a divisibility problem, the small denominations will be in short supply and we will start having cash ques in the banks.
“The advantages of having a domestic currency circulating along the hard currency is that we have been able to manage the cash shortage situation. If you recall we had to create something called the bond note in order to deal with the cash crisis issues as a stop gap measure.”
Mthuli said single use of the US dollar, would kill the competitiveness of the economy, especially the manufacturing sector.
“The Zimbabwe dollar is giving our manufacturing sector the much-needed competitiveness against foreign products,” he said.
“And finally, but this is not the only last thing that will happen. You will be doing away with monetary policy. We cannot have a country that has no monetary policy that has got a fiscal policy only, you will be walking on one leg when it comes to the conduct of macro-economics you need both monetary and fiscal policy.”
Government has previously stated its commitment to its five-year de-dollarisation roadmap despite the depreciation of the local currency.
As of Tuesday, the local unit was trading at ZWL325: USD1 on the Reserve Bank of Zimbabwe auction market while on the parallel market it is going for anything between ZW$450-ZW$500 against the greenback.
However, the Government is confident that fiscal and monetary measures it has put in place to stabilise the local currency would succeed in the long term.
In an effort to encourage wider use of the local currency, the Government allowed miners to pay up to 50 percent of their royalties in Zimbabwe dollars, while all duties and taxes due on the importation of designated motor vehicles are to also be paid in ZWL up to a limit of 50 percent.