There are growing concerns over the continued phasing out of the Zimbabwe dollar (ZWL), particularly on the informal market at a time authorities are attempting to transition into a mono-currency system anchored by the local currency.
Government re-introduced the Zimbabwe dollar two years ago but has struggled to sustain it against mounting exchange rate pressures leading to its depreciation.
Speaking at a Confederation of Zimbabwe Industries (CZI) 2022 Outlook Symposium, Agribank-head of strategy and business development, Joseph Mverecha said the dual system was making the local currency less favorable when functioning alongside a much stable currency in the US dollar.
“The multi-currency system has created distortions on the market. You will find price differentiation and customers given discounts for using USD. This is leading to growing local currency disuse,” said Mverecha.
The informal sector is predominantly charging consumers in USD with most of informal traders either refuting payments in local currency or setting high premiums.
He said there was a high unlikelihood of both the fiscal and monetary policies achieving local currency stability given the unrelenting widening of the exchange rates between the official and parallel markets.
Currently the ZWL is trading at 120/USD on the official market against 240/USD on the parallel market reflecting a 100 percent variance.
Economist, Professor Gift Mugano estimates that the economy will fully dollarize by mid-year driven by huge payments in ZWL of productive sectors such as farmers by the government.
However, businesses are concerned that the return to a predominant USD system will spill negative effects to the economy, rendering it uncompetitive.
Already the USD is expected to strengthen this year following record interest rates hikes by the Federal Bank to tame increasing inflation.
“Our only solution is to support the Zim-dollar so that we remain competitive,” said James Wadi, Banc ABC Group economist.
Last week government announced measures to enhance usage of the ZWL by allowing exporters to pay a portion of their taxes in the local currency.
However, observers have criticized government for not being consistent in encouraging local currency usage in the economy when it still collects some taxes and incentivizes in employees in foreign currency.
