Redollarisation inevitable as Zimbabweans lose faith in local currency.

By Almot Maqolo

The Zimbabwean economy has dollarized informally as evidenced by the rise in use of the United States dollar over the local currency which continues to lose ground against the greenback. The same situation happened in 2008 when the economy dollarized informally as a result of hyperinflation which rendered the local currency valueless resulting in the government abandoning it 2009.

Most people are transacting in US dollars compared to local currency which is made up of bond notes, bond coins and RTGS balances (electronic money) largely because the greenback saves the most important role of money that is store of value. The issue of small notes has become a challenge as there are few in circulation. Money changers are the ones transferring one note from one person to the other hence the shortage of small note

s because remittances rarely come below US$5.Diaspora cash remittances is a vital source of foreign currency liquidity for the country’s economy and income for many households. Personal remittances consist of all current transfers in cash or in kind received by households in the country and these make a considerable contribution to both urban and rural livelihoods.

Remittances are projected to remain resilient as Diasporans safeguard transfers to their families, irrespective of the Covid-19 shock. In this regard, according to Treasury, remittances are projected to slightly decline by 4.9% to US$877 million in 2020, from US$921.7 million in 2019, as major source economies, such as South Africa, UK, and US go into recession this year.

The economy has self-dollarized backed by informal banking system that is fully functional. The government can do some resistance but it’s inevitable. With the look of things government don’t have another plan in place to avoid re-dollarisation. In a desperate move, they introduced local nostro accounts to cushion civil servants from the economic shocks.

However, once again it is failing to work as no business trusts this government. It will be hard for the broke government to support dollarisation because of the fact that it lacks the financial muscle to pay all civil servants in foreign currency. Last time, it worked because of the Government National Unity which had international support.

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