RBZ promotes use of Zimdollar

RESERVE Bank of Zimbabwe (RBZ) governor, Dr John Mangudya, says the central bank is working on measures to promote the use of local currency to reduce demand for foreign exchange for domestic transactions.

Dr Mangudya said this while addressing the CEO Africa Roundtable business breakfast meeting held on Thursday.

His sentiments came after calls by local economic consultant, Professor Tony Hawkins, who called for re-dollarisation as a way of stabilising the local economy.

In his response, Dr Mangudya said although the 1:1 period brought economic stability from the 2008 hyperinflationary environment, it did not bring much economic turnaround.

Capacity utilisation in the said period remained subdued as the country experienced high production costs that rendered local produce uncompetitive on the export market.

He said Zimbabweans needed to embrace the use of the local currency and eliminate the high appetite of the US dollar whose demand had led to a spike in the exchange rate, particularly on the parallel market.

He pointed out that initiatives were being crafted to improve the attractiveness of the local currency, a position that would encourage domestic savings.

"You will never grow the economy with re-dollarisation, we need to believe in our own currency, the myth that the economy was doing well during 1:1 era should be done away with, there was stability yes in terms of
stable prices but did not make the economy to grow.

"We need to promote the use of our local currency so that it also anchors inflation, we need also to support domestic savings in this economy so that people have value for money," said Dr Mangudya.

As a way of lessening the US dollar demand on the parallel market, Dr Mangudya highlighted that the Reserve Bank would quicken the auction system's allotment time to a maximum of two weeks in 2022.

He, however, acknowledged that the spike of the exchange rate was closely linked to the price movements which subsequently led to higher inflation hence the need to curb exchange rate escalation as a way of keeping inflation in check.

"We are going to ensure that the allotments going forward will be timeous with settlements being made in a period of two weeks, we have set that for ourselves so that discipline in the economy is enforced.

"The bank remains committed to staying the course of conservative monetary targeting framework, pursuing strict monetary targeting framework to ensure that money supply does not destabilise exchange rate.

" . . . because in Zimbabwe the relationship between exchange rate and the price is very closely related, there is a pass-through effect that comes from the exchange rate into the pricing system," he said.

According to Dr Mangudya in 2022 Central Bank will continue to institute tight on monetary practices to ensure that inflation, is reduced from last year December's 60,7 percent down to between 20-30 percent by end of the year.

"Our inflation outlook, remains positive we are going to continue with the monetary policies that ensure that we reduce inflation, we want to reduce it from 60,7 percent where it was last year in December down  to between 20-30 percent by end of the, so that next year it will be in the SADC benchmarks," said Dr Mangudya.

He indicated that the country had earned US$9,7 billion in foreign currency receipts in 2021 from exports, diaspora remittances, and loans which he suggested was a huge sum in comparison with earnings by some of our regional peers.

Further highlighting that local banks were well capitalised with foreign currency deposits of about US$1,7 billion which is 44 percent of deposits, and  56 percent of deposits were in local currency.