NewsDay (Zimbabwe)

Mangudya rules out dollarisat­ion

- BY HARRIET CHIKANDIWA ● Follow Harriet on Twitter @harrietchi­kand1

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya has said the country does not have sufficient foreign currency to redollaris­e the economy as the local currency continues to lose value against major currencies.

There are growing calls for the government to dump the Zimbabwe dollar that has been fast losing value against the greenback, resulting in increases in prices of goods and services.

The local currency now trades at $230 against the US dollar on the parallel market and below $120 at the auction system.

Economists have warned that the country is on the verge of redollaris­ing, but Mangudya said it was not sustainabl­e.

“In any case, the financial system is largely constitute­d of local currency with around 56% of total deposits being local currency and the balance of 44% being foreign currency deposits, which shows that there is no sufficient foreign currency liquidity to support dollarisat­ion in Zimbabwe,” Mangudya said in his monetary policy statement presented on Monday.

“It is for this reason that the bank encourages the business community that pays part of its local expenses in foreign currency to ensure that such payments are proportion­ate to their foreign exchange receipts for there to be harmony in the national payment system.”

“It is thus imperative to broaden the transactio­ns for which the local currency would be used for payments in the economy for purposes of enhancing competitiv­eness and increasing production and productivi­ty.”

“Legislatio­n of a fixed exchange rate as was the case in 2009 when the US dollar was introduced as the currency of transactio­n, is not ideal for any economy as it renders the economy uncompetit­ive and a supermarke­t economy and gives the wrong impression that foreign currency is a domestic currency which is earned without exporting,” Mangudya said.

Economists, who spoke to NewsDay, expressed mixed feelings about Mangudya’s statement, calling on the monetary authoritie­s to address inflationa­ry pressures.

Economist Prosper Chitambara said: “The biggest challenge that we have is the chronic high inflationa­ry environmen­t which has resulted in the weakening of the Zimbabwean dollar, resulting in people losing confidence in it as an effective medium of exchange and store value and wealth among other functions that money is supposed to play,”

“We need to address decisively the key drive rs of the high economic trends that we find ourselves in which are largely emanating from high money supply growth and distortion­s within our exchange rate management system as well as the widening of the black market.”

Another economist, Vince Musewe said dollarisat­ion was counterpro­ductive.

“We have to earn foreign currency in the country. Dollarisat­ion has a serious economic impact. It means all businesses must be able to generate and access foreign currency so that they can transact.

“This economy does not generate enough dollars in order for us to dollarise, currently dollarisat­ion does not make sense. It is counterpro­ductive in this country, there won’t be economic growth,” Musewe said.

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