‘Dollarisation would kill competitiveness’

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THE Central Bank says completely dollarising the economy would affect the competitiveness of businesses in the country amid rising pressure from the market to adopt the US dollar as the sole currency of trade.
Zimbabwe is currently operating in a multi-currency system with the domestic unit depreciating considerably against major currencies.
“So, the challenge with dollarisation is that it will affect the competitiveness of firms because when you dollarise it means you now need US dollars for meeting external transactions that is your imports and paying your external debt.

“We also need the same US dollar for the day-to-day transactions in the economy and also as a store of value, so demand for foreign currency will be very high. Remember for you to get foreign currency you have to export, so it means all your transactions in the economy will be limited to the quantum of foreign currency to the extent that your country is exporting,” the Reserve Bank of Zimbabwe Economic Research Division deputy director, Nebson Mupunga, said at a Methodist Church in Zimbabwe business conference in Harare recently.
“For example, if we are exporting around US$6 billion, it means liquidity in the economy or the amount of money that is needed to sustain transactions in the economy will only be limited to US$6 billion that’s why we end up having a weak aggregate demand. Because there will be not enough money to sustain the transactions. That is why we failed to sustain it.”
Economists have also warned of an increased risk of major revenue loss owing to the growing use of the US dollar as the Zimbabwean economy moves towards “full re-dollarisation”.
Mupunga highlighted that when the country dollarised, it also had in the system local dollars or virtual dollars making it sustainable.
He noted that if the country is to use pure US$, the currency regime will be difficult to sustain, hence the concerns of the monetary authorities.
“The good thing when we dollarised that time is that over and above the US dollar we also had we also had in the system what we were calling local dollars or virtual dollars.
“Now if we are to separate to have pure US dollar we find that it will be difficult to sustain such a currency regime, so that’s the danger that authorities are worried about,” Mupunga said.
“Countries that have sustained dollarisation they had an agreement with America where they can even support you in terms of foreign currency liquidity, which is not the case in Zimbabwe.”
He urged the country to embrace the dual currency system in the meantime, while monetary authorities work on creating the right fundamentals to have a local currency trading domestically.
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