De-dollarisation roadmap complete, but . . .

The Government has completed its de-dollarisation roadmap as talk of returning to mono-currency is gaining momentum, driven by a desire to reclaim monetary sovereignty and stabilise the economy.

However, beneath the surface, economists and analysts say the road to de-dollarisation is fraught with challenges that could derail the nation’s economic recovery if not carefully navigated.

As the Government and financial institutions contemplate this bold move, the feasibility of such a monumental shift remains deeply questionable.

The scars of past currency failures are still fresh in the minds of Zimbabweans, who have witnessed first hand the devastating consequences of this economic challenge.

Experts warn that without the necessary groundwork such as a stable macroeconomic environment, robust foreign exchange reserves and unwavering policy consistency, de-dollarisation could quickly morph into a financial catastrophe.

When asked by Business Weekly if they had been consulted by the authorities, the Bankers Association of Zimbabwe (BAZ) president, Lawrence Nyazema, said they will have an opinion once the roadmap is out.

“Of utmost importance to our sector is policy consistency and a stable macroeconomic environment,” Nyazema said.

Analyst, Tafara Mtutu, believes the short answer to the de-dollarisation readiness is no, but pins his hopes to de-dollarise on this new ZiG currency.

All this is due to the fact that the currency is backed by something that is much better than just confidence.

“So, currency in circulation is circa US$2,5 billion and in our own coffers we have around US$300 million which we need to increase that the currency circulation to about US$2,5 billion, US$3 billion thereabout. If we work with the receipts that we get from ZIMRA through royalties of gold and we assume that the gold price remains at the current price, then we will likely have what we need to de-dollarise in the next 12 to 15 years,” Mtutu asserted.

However, the assumptions are based on the fact that gold price remains as it is right now and the RBZ is consistent and disciplined as well as the fiscal authorities in terms of money printing.

Economist, Gladys Shumbambiri-Mutsopotsi, believes Zimbabwe’s economy is not yet ready for de-dollarisation, as the country still struggles with high poverty and unemployment rates, as well as a large trade deficit.

“The citizens are still recovering from past currency shocks and trust in the local currency is still low. A de-dollarisation roadmap may be seen as inconsistent with current policies, and changing the timeframe from 2030 to the rumoured 2026 deadline may lead to market instability. The impact on stock markets is uncertain, but it may lead to increased volatility and decreased investor confidence,” she said.

Economist, Enoch Rukarwa, believes promoting the use of local currency in a multi-currency system can offer significant economic and national benefits, but it also comes with risks and challenges.

“Local currency usage strengthens the central banks control over monetary policy, enabling better management of inflation and interest rates all things being equal. However, taking stock on what is happening on the ground the market seems not yet ready for de-dollarisation especially in the short to medium term,” Rukarwa added.

According to him, over-reliance on local currency use has proved to be inflationary in the past due to challenges around money supply management and confidence deficit.

“The Zimbabwean local currency has a history of instability and devaluation; pushing for its use through legislation might be met with scepticism and confidence deficit from stakeholders,” Rukarwa noted.

Economist, Dr Prosper Chitambara, argued that de-dolarisation is actually a process and must be a market-determined process that is actually based on the attainment of key milestones or key benchmarks including sustaining low and stable inflation over time and building our foreign exchange reserves.

“Currently, yes, we have seen some stability on the macroeconomic front, but of course we need to sustain that over time. But more importantly, we need to build our reserves,” said Dr Chitambara.

“Our reserves are inadequate, in my view, we need at least a three-month to six-month import cover, which translates to about US$2,3 billion to about US$4,6 billion. That would be critical in terms of sustaining the stability of the exchange rate.”

In many countries having adequate foreign exchange reserves is very critical in terms of supporting a currency. South Africa, close to home, has about US$62 billion in reserves with Zambia and Botswana, at about US$4 billion in reserves.

“We need to build up our reserves, and that would be a key milestone, so, we need to make sure that the dollar exchange is based on a market-determined and led process, tied to the attainment of key macroeconomic benchmarks, and not necessarily a Government-decreed process,” added Dr Chitambara.

As for stock markets, Mtutu believes there will always be volatility that comes from such statements. If we de-dollarise and the roadmap is not sustainable, we go back to 2019, where people were now forced to use local currency and there was money printing and the stock market for a while was depressed and then it shot up.

“But in all those movements, in real dollars, the stock market lost value, so there will be volatility for speculators to make money out of that, but on a yearly basis or on an annual basis, the stock market most likely will be worse off,” he said.

Said Rukarwa: “Our local capital markets continue to be at the mercy of systematic risk as opposed to company fundamentals, any significant economic event or policy change will be directly transmitted to the stock market.”

The analysts added that if Zimbabwe does de-dollarisation correctly, then it will only have to do it once and then the next generation will have one less problem to worry about.-ebsinessweekl