RBZ rules out return of Zimdollar

Zimbabwe will continue using multiple foreign currencies for the foreseeable future until production levels have increased, the central bank has said.

This comes as various stakeholders in the country have been debating the longevity of the multiple currency system.

Zimbabwe ditched its local currency in 2009 after it was rendered worthless by hyperinflation. The government adopted more stable currencies including the US dollar as well as the South African rand and Botswana pula.

Following Zanu-PF's landslide victory in last year's elections coupled with dwindling revenues, some party officials have been pushing for the return of the discredited Zimbabwean dollar.

Presenting his maiden monetary policy statement on Monday, John Mangudya, the Reserve Bank of Zimbabwe (RBZ) governor, said the local currency would only be resuscitated when the country's foreign exchange reserves and domestic production levels are significant enough to sustain its rebirth.

"Government's consistent and official position is that the country is using the multiple currency system," he said.

"The current low levels of production within the economy, concomitant with the high levels of imports are not conducive for the return of the local currency. It would therefore be economic suicide for government to do so without foreign exchange reserves to anchor the local currency."

Economic experts say the assurance by the RBZ governor will assist in instilling investor confidence in the economy as well as strengthening the financial services sector.

Last week, the Bankers Association of Zimbabwe (Baz) said it was imperative for government to retain the multi-currency regime to maintain price stability as well as to strengthen the banking sector for overall economic growth.

Sam Malaba, the Baz president, said the multiple currency system was typically difficult to reverse as the country's populace had lost trust in its local currency.

"The loss of trust in a currency is not an event; it is a process — often recurring macroeconomic instability, accompanied by high inflation rates and loss of a key function of money-store of value, hence undermining its viability as a medium of exchange," he said.

"In many countries, macroeconomic instability is often preceded by political instability or occurring concurrently.".

Malaba noted that the reversal of dollarisation was not easy even when the underlying causes had been addressed, adding there was need to have confidence in economic policies following episodes of macro-economic instability, particularly characterised by hyperinflation.

"There are few cases where countries that had dollarised, succeeded in reversing dollarisation," he said.

"The notable success cases are Israel, Poland, Mexico and Pakistan. In regard to the success stories, these countries implemented a broad range of macro-economic stabilisation measures, typically controlling inflation through inflation-targeting and adopting specific measures to project increased local usage.

"Reversal of dollarisation or de-dollarisation came as a by-product or derivative of sustained good domestic economic policies which restored confidence in the economy, hence increased use of the domestic currency," he said.

Malaba said the multi-currency regime succeeded in taming raging inflation and created conditions of price stability, though characterised by uneven relative price adjustments - prices of goods adjusted almost instantly, while prices of services and utilities remained high.