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'US dollar appetite cannot be satisfied in Zimbabwe'

by Staff reporter
20 Jun 2023 at 06:49hrs | Views
WHILE Zimbabwe has enough foreign currency, the country's major challenge is not money supply but liquidity because a small percentage of the population has foreign currency while the generality of citizens struggle to get money to buy basics, a senior Reserve Bank of Zimbabwe (RBZ) official has said.

Contributing to the ongoing national debate about the recent exchange rate spiral and its impact on the economy, Reserve Bank of Zimbabwe (RBZ) deputy director for economic research, Dr Nicholas Masiyandima, acknowledged that the country is battling renewed inflationary pressures, which have seen the United States dollar becoming a preferred legal tender due to its stable store of value function.

The situation has sparked consumer outcry amid concerns of artificial commodity shortages as some traders are now pricing certain basic goods in forex only, and would place a huge premium on local dollar sales to deliberately frustrate those using it.

As a result, some business leaders have been calling for a full return to dollarisation citing the loss of value for the local currency, a position that authorities have outrightly rejected on the basis that such a path has been proven to be unsustainable from past experience.

Zimbabwe adopted the multi-currency system in 2009 in response to hyperinflation and abolished its position in 2019 when it re-introduced the local currency. The country is now back to the multi-currency system, which Government said was for a short period, at least up to 2025.

According to official estimates, the country generates more than US$11 billion from exports annually, which has given a surplus balance of payment higher than neighbouring countries.

However, this is still not enough because everyone wants to transact in foreign currency for local transactions instead of using the local dollar, said Dr Masiyandima.

He observed that while other economic fundamentals were critical, people should not forget the adverse impact of speculative behaviour, which is widening the exchange rate gap between the official rate and the parallel market rate. Dr Masiyandima said the biggest challenge was that there is an unlimited demand for the USD because of its overuse.

"In Zambia and South Africa, they prefer using their own currency but let me tell you something unique about the USD, once you taste it you will always want it," he told delegates during a recent economic strategy summit in Victoria Falls last week.

"So, the mistake that occurred in our situation was the defacto adoption of the USD in 2009 and once you dollarise it's difficult to move out because the minds of people will always be thinking that way," said Dr Masiyandima.

"Other countries use their local currency to buy goods but in the case of Zimbabwe we use USD for transactions, which is why even the US$11 billion annually may not even be enough even if it is higher than what Zambia or Malawi is generating because we have too much use for the USD."

Dr Masiyandima said Zimbabwe has enough foreign currency but the dual currency system is complicating things as it leads to high demand for the United States dollar.

He, however, said the country was putting adequate measures for the local currency to survive the turbulence and urged businesses not to take advantage of inflation but be ethical and rational to make sure the country has stability.

Dr Masiyandima said what is crucial is that the local currency remains functional as the country needs its own currency.

Source - The Chronicle
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