African Development Bank (AfDB) vice-president Mthuli Ncube on Monday said the adoption of the US dollar in 2009 increased the cost of doing business and reduced the availability of credit.
Ncube, who is the bank’s chief economist, said the multi-currency regime has dried up the flow of funds to the productive sector. “It (dollarisation) has slowed down the availability of credit in the productive sector but, secondly, just made the cost of doing business very high,” said Ncube.
“But I guess that’s the pain that needs to be undertaken in order to get things straightened out there.”
Ncube, however, said the adoption of the multi-currency regime has had positive improvements to the economy notably curbing runaway inflation. In June the AfDB forecast Zimbabwe’s growth at about 8% for 2011.
Zimbabwe abandoned its inflation-ravaged dollar in 2009 to adopt a basket of foreign currencies — mainly the South African rand and the United States dollar — to try to pluck the once prosperous country out of a crisis brought about by a decade-long economic recession.
In mid-June, the International Monetary Fund in its Article IV for 2011 Report, said the government had agreed conditions for the reintroduction of the Zimbabwean dollar were not conducive and an extension of the multi-currency system would be announced by end of 2011.
“The government has stated that the Zimbabwe dollar would not be reintroduced until there is clear evidence of a strong economic recovery characterised by a sound track record of policy consistency and implementation,” reads part of the report.
Recently, Reserve of Bank of Zimbabwe governor Gideon Gono proposed the adoption of the introduction of a gold-backed Zimbabwe dollar to resolve the liquidity crisis currently ravaging the economy.
But currently, no country in the world is using gold to value its currency after it was abandoned by US government in 1971.
The re-introduction of the Zimbabwean dollar is also likely to be met with resistance from the business sector and individuals.