BY EVANS MATHANDA This past week the government moved to reaffirm the United States dollar as legal tender in Zimbabwe as it scrambled to stop runaway inflation and restore confidence in the economy.
Zimbabweans have been freely using the US dollar in local transactions since 2020 after government introduced measures meant to insulate the economy against global shocks following the outbreak of Covid-19.
The return of the US dollar comes barely a year after the country ended a decade of dollarisation with the reintroduction of the Zimbabwe dollar, which had been discarded in 2019.
Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe governor John Mangudya announced the new currency measures last week and many felt the interventions were long overdue.
Uncertainty around the currency system has historically been a hindrance to Zimbabwe’s development and prosperity for its citizens.
The government has a long history of being inconsistent when it comes to its economic policies.
In May, there were attempts to make it illegal to use the US dollar in all transactions as President Emmerson Mnangagwa’s government fumbled for solutions to end the crisis conundrum.
The temporary suspension of banks from lending activities that month was proof that the government was bereft of solutions to the crisis.
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Long suffering citizens find it impossible to prepare for the future as a result of all these abrupt announcements, and businesses have good reason to cut back on new investments and existing ones.
It was economic suicide to force people to accept a currency that they never trusted in the first place.
Some economists have been pushing for dollarisation for some time citing lack of fundamentals to sustain a domestic currency.
There is no doubt that the government was forced to entrench the use of the US dollar in the economy by obvious developments such as hyperinflation and shortages of certain commodities.
An economist Regret Sunge recently predicted that the government would give in to pressure and formally reintroduce the US dollar, despite the fact that pleas for dollarisation appeared to be going unheeded.
However, the government was dithering and seemed unsure of whether the country was dollarising or not.
But after hearing conflicting opinions about the currency issues that are threatening the economy, the government moved to dollarise formally.
Many people were asking for a monocurrency regime as inflation continued to climb as consumers chose the US dollar as their preferred option since they believed it would preserve value for their savings.
In the past three years, the government has demonstrated that it has no answers for the currency crisis, hence the many policy shifts.
The opponents of dollarisation will claim that the fragility of the Zimbabwe dollar is due to the fact that the local currency is being sabotaged.
This is not true. People are acting reasonably; they are attempting to safeguard their means of subsistence, pensions, and savings against hyperinflation.
The Zimbabwe dollar is not wanted by the general populace.
Even policy makers lack faith in the Zimbabwean dollar, which they once claimed to be the region’s strongest currency.
What is an undeniable fact is that every country needs its own currency to stay competitive.
Re-dollarisation should be a bitter pill to swallow for a government that is led by a former liberation war hero and which styles itself as a champion of empowerment.
However, the authorities have to put the interests of long suffering citizens first.
Each of us would want to have some US dollars in our pockets right now, and every company could desire to see the economy being dollarised.
By officially dollarising the economy, Zimbabwe can have a cash-based economy with significant amounts of US dollars in circulation outside of the banking system.
Like in 2009 when the country adopted a multicurrency system, Zimbabwe can benefit from a hands-off approach to currency management, but if the economy is not adequately managed, a variety of problems could potentially emerge.
Although this is a start in the right direction, the elite might modify the fiscal and monetary policies overnight and we would be back where we started with the currency problems.
- Evans Mathanda is a journalist and development practitioner who writes in his personal capacity. For feedback email: [email protected] or call 0719770038 and Twitter @EvansMathanda19