Zimbabwe needs at least five years to complete the de-dollarization process which started last year in June following the abolishment of the multi-currency system, Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya has said.
De-dollarization is the transitional process from an American dollar denominated economy to a local currency denominated one which Zimbabwe is currently traversing.
In his 2020 first half Monetary Policy Statement presentation this morning, the Central Bank chief said the projection was based on positive figures achieved during the first year of de-dollarization.
“The bank is encouraged by the de-dollarization process that has taken place in the economy. The bank believes that the macro economic signals that include fiscal and monetary discipline, prospects of positive economic growth and lower inflation are improving to support a gradual de-dollarization process within a time frame of five years,” he said.
Mangudya said there has been a downward trend in foreign currency deposits as a proportion of money supply in the country to 37 percent by close of year 2019 from 50 percent when the year opened.
Official figures show that local currency usage has also continued to grow, reaching a total amount of ZWL$ 459 billion from 189 million transactions for the full year of 2019.
“This is in line with other countries experiences with de-dollarization. Israel took about 10 years to de-dollarize and right now the DRC is still struggling with it,” said Mangudya.
Zimbabwe floated its currency in February last year and established the local currency as the sole legal tender in June 2019 but is yet to fully de-dollarize as market forces continue to favor transacting in the American dollar.
The Zimbabwean dollar continues to be highly susceptible to exchange rate fluctuations and has tumbled over 600 percent since February last year.
But market watchers are less convinced by the Governor’s time frame to complete the de-dollarization process citing the nature of the economy that is now highly informal.
They fear this could take more time than anticipated to end the de-dollarization process.
“The Governor is basing his facts on the foreign currency deposits in the formal banking channels but the we have to remember that Zimbabwe’s economy is over 61 percent informal therefore a lot of foreign currency is circulating unrecorded on the informal channels including on the black market,” financial analyst, Persistence Gwanyanya told 263Chat Business.
Already, a huge segment of the economy is charging goods and services in US dollars, particularly in the properties sectors were rentals are practically in USD currency despite the ban on foreign currency transactions locally.