Dollarization will lead to 'very nasty' events for Zimbabwe

FINANCE minister Mthuli Ncube has said the banking sector will be wiped out, causing a cash crisis if Zimbabwe ever fully dollarizes.

This follows growing calls for government to adopt the USD as the dominant legal tender and dump the ZWL.

Ncube said such a move will result in ‘nasty' events in the economic sector including a severe cash crisis and negative bank balances.

Responding to questions during a post cabinet briefing Ncube added that the manufacturing industry will lose its competitiveness against foreign products.

"We have embraced the US dollar but have also embraced our own currency the Zim dollar so there is no rejection of the US dollar, we are using it.

"As government we are also using it to pay and I suspect you are also using it to pay in shops, you are also charging others for goods and service.

"So, this is what will happen on day one if you adopt the US dollar as your currency, something very nasty will happen.

"You will wipe out the entire banking sector because you will have to convert the Zim dollar balances into US dollars, the banks will have a negative balance, you will have a crisis.

"You will have a cash crisis because you cannot print US dollars and you have a divisibility problem so the small denomination notes will be in short supply and causing cash queues in banks," Mthuli said.

He added: "The advantages of having a domestic currency circulating along is that we have been able to manage the cash shortage situation which we have been through before.

"The economy, especially the manufacturing sector will immediately lose its competitiveness against foreign products.

"We will then have to do away with monetary policy, you cannot have a country that has no monetary policy but only has a fiscal policy, you are walking on one leg when it comes to the conduct of macroeconomic, you need both the monetary and fiscal policy, something nasty will happen if you just use the US dollar only."