‘Zimbabwe has no capacity for full dollarisation’
Leonard Ncube, [email protected]
RESERVE Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, has urged Zimbabweans to embrace the local currency saying the country has no capacity to sustain a fully dollarised economy.
While the Government has allowed partial use of foreign currency as an official medium of exchange alongside the local dollar, at least up to 2025 with the ultimate goal being to fully return to the Zim-dollar system, some economic players are aggressively pushing for full dollarisation citing the weakening of the local currency as a store of value.
Treasury, however, admits that the dual currency system is serving a good economic purpose as a transitional measure but boldly signalled that the long-term focus is to de-dollarise.
Amid this scenario, speculative market forces have been taking advantage of the window to fuel parallel market exchange rate volatility, which has led to price escalation and erosion of consumer purchasing power.
Speaking here during a conference organised by the Chamber of Mines of Zimbabwe, Dr Mangudya said Zimbabwe has about US$2,4 billion in deposits, and half of it is kept in liquidity by financial institutions to fund their clients who are exporters, and mostly mining companies.
He said over 70 percent of the country’s exports come from the mining sector and the money generated does not belong to Treasury as opposed to the general notion that the country generates enough foreign currency to be able to dollarise.
His sentiments followed concerns by participants at the conference that the Government was not releasing foreign currency for the importation of electricity, among other challenges faced by the mining sector. This comes amid concerns that power utility, Zesa, is failing to import electricity because of lack of foreign currency, among other challenges. The challenge is militating against productivity in the mining sector, which requires about 2 000MW.
Dr Mangudya said the mining sector was supporting the economy as it had helped revive the manufacturing sector and ignited life into some companies whose premises had for some time been turned into churches.
He said it was ironic for a country that has no foreign currency to import electricity to want to dollarise its economy. To him, it is a few individuals and exporters that want the economy dollarised and move away from multi-currency system.
“Because you are consistently exporting, people say we can now dollarise. This money is not ours — it belongs to the exporter,” said Dr Mangudya.
“It means that we have no capacity to dollarise because already we have a shortage.”
The RBZ Governor said the best solution was for citizens to have confidence in their own local currency. The Government has always expressed concern over citizens’ lack of confidence in the local currency and has chided businesses and individuals that inflate prices of goods in local currency as a desperate way to discourage local dollar usage.
As such, Dr Mangudya said there was a need for stakeholders to fully embrace the local currency for local purchases and spare foreign currency for importation of electricity and other critical services.
“The country has no sufficient foreign currency to dollarise. As you heard Zesa cannot import enough electricity because there is no foreign currency,” he said. “What it means is that what people are asking for, we have no capacity to dollarise. We have more than US$2,4 billion in our deposits and of those deposits, US$1,4 billion is in banks as liquidity for them to fund their customers,” said the Governor.
“That money belongs to few people and companies that are the largest exporters. Most of the money belongs to the mining sector so it means me and you we don’t have foreign currency.
“So, people who want to dollarise are individuals but we don’t have capacity and what it means is that we need to embrace our local currency for local purchases so we reserve foreign currency for imports,” said Dr Mangudya.
He said there is a need for more robust discussions on the way forward as a country, noting that the demand in the economy for electricity shows lack of capacity to import enough power, and appealed to citizens to understand that numbers do not lie.
He said the market clearing exchange rates only focus on clearing foreign payments and not domestic payments hence there is rampant duplication of resources for local payments and foreign payments.
The mining conference proceedings ended yesterday and today delegates will participate in a golf tournament.