<a href="https://pindula.co.zw/Reserve_Bank_of_Zimbabwe">Reserve Bank of Zimbabwe</a> (RBZ) Governor <a href="https://pindula.co.zw/John_Mangudya">John Mangudya</a> has for the umpteenth time ruled out dollarisation arguing that Zimbabwe has no capacity to do so.
Addressing delegates attending the Chamber of Mines of Zimbabwe (CoMZ) annual conference in Victoria Falls on Thursday, Mangudya urged Zimbabweans to embrace the Zimbabwe dollar saying dollarisation was not only unattainable but would also have negative consequences. He said:
<blockquote>
Let’s be resolute to maintain that to go forward. The only country that we have is this country.
My message is that the country cannot sustain itself by using other people’s foreign currency.
So, you need to embrace your own. That’s what it means. That 30% should not drive the other 70%, they should co-exist properly without manipulation.
This year up to the 30th of April, 70% of the exports came from mining. So, you are consistently performing well.
The foreign currency belongs to the exporter because 75% of the money belongs to the export.
I have read that many people are confused that we can now dollarise because of these funds. These funds aren’t ours.
You can’t take it from Zimplats or Unki or Mimosa’s accounts and then we go and dollarise the economy.
We have no capacity to dollarise because the money in the banks is not ours.
It belongs to the exporters so that they can export more. Now people are always confused that this US$11 billion is ours, no it’s not ours
The numbers don’t lie. If you can measure it, you can manage it. Ours is 25% which is supposed to go through the rest of the economy.
That’s what we use for auction, for reserves and for paying debts. That’s what it is.
</blockquote>
Some economists, trade unions and opposition political parties have been calling on authorities to dump the Zimbabwe dollar as most shops and service providers are demanding US dollars and using parallel rates for products pegged in the local currency.
Even Government departments and parastatals, such as the Zimbabwe National Roads Administration (ZINARA) and ZESA Holdings, constantly adjusts fees and tariffs to keep up with rising inflation.
More: <a href="https://www.pindula.co.zw/">Pindula News</a>

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Mangudya Says Zimbabwe Cannot Sustain Dollarisation

Economic commentator Gift Mugano has predicted that Zimbabwe’s annual inflation will be 400% with the exchange rate likely hitting ZWL$1500: US$1 by June this year.
The Zimbabwe dollar is currently trading at ZWD$1.100 to the USD on the black market, <a href="https://www.newzimbabwe.com/annual-inflation-to-reach-400-while-exchange-rate-likely-to-hit-zw1500-by-june-says-economic-analyst/">reported NewZimbabwe.com.</a>
Year-on-year inflation was also the highest in the world at 255% in November last year.
Responding to claims by the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, that the country’s de-dollarisation was on course, Mugano said on the contrary, the central bank’s policies are driving dollarisation.
He argued that chronic inflation and the 200 percent interest rate are some of the main drivers of dollarisation. Said Mugano:
<blockquote>
I am still convinced that the following remains our economic outlook by June 2023; annual inflation of 400% and exchange rate ZW$1500/US$1.
… we have deepened dollarisation. The main drivers of dollarisation are chronic inflation, 200% interest rate, excess liquidity caused by Treasury and domestic export retention as well as high export retention.
With a 200% interest rate, businesses have switched to USD loans since it has virtually become impossible to pay back loans fourfold.
The 20% domestic export retention and 40% export retention compels RBZ to print ZWL in exchange for the 20% domestic deposits and 40 percent export receipts.
RBZ does not have a budget set aside for this. This drives up money supply. In August and September 2022, money supply rose by $708 bn excess liquidity driven by the treasury.
</blockquote>
Mugano noted that excessive liquidity driven by treasury is driving inflation and de-dollarisation cannot be achieved in such an environment. He said:
<blockquote>
Excessive liquidity driven by treasury – without going far, in December 2022, treasury irresponsibly made last-minute payments to Ministries and government departments’ requests thereby putting the rate into disarray.
</blockquote>
The Treasury could have staggered these payments during the course of the year.
<blockquote>
Inflation and de-dollarisation can only happen when the country attains single-digit inflation and exchange rates are stable.
This will cultivate a productive culture which is key to supporting the local currency. This is missing. We have chronic inflation and volatile exchange rates.
</blockquote>
To further prove his point that the economy is dollarising, Mugano pointed to the sudden decline of allotment from the RBZ’s auction system. He said:
<blockquote>
The auction system allotment is an interesting one. In 2022 imports surged to above US$ 8.2 billion (exceeding 2021 imports by US$1 billion) but the USD allotted to firms declined from US$42 million per week to US$11 million.
So imports are increasing but the forex given by the RBZ to firms to support imports is falling.
It tells you one thing, firms are now relying on their own generated forex from local sales to meet their import requirements.
This means that we have deepened dollarisation.
</blockquote>

Top Economist Predicts Sharp Rise In Inflation, Exchange Rates By June 2023

The Reserve Bank of Zimbabwe (RBZ)’s continued tight monetary stance which has largely squeezed out local currency risks full re-dollarisation of the economy, analysts have warned.
Several businesses are now preferring to transact in US dollars to protect their balance sheets, with even civil servants earning the bulk of their salaries in foreign currency.
Imara Capital Zimbabwe in its Zimbabwe Investment notes said authorities’ clampdown on Zimbabwe dollar payments has inadvertently accelerated dollarisation. It said:
<blockquote>
We have spent the past weeks speaking with many executives from both the private and the listed space.
Two large food manufacturers we met have seen their US dollar revenues rise from around 35 percent of sales earlier in 2022 to over 70 percent since August 2022.
Furthermore, the formal retailers have found it difficult to pay them so products have been directed to the US dollar cash economy and hence physical cash intake has risen.
</blockquote>
Last year, the RBZ introduced gold coins that are reported to have mopped up excess ZWL liquidity in the market.
It also introduced minimum lending rates of 200 percent and 100 percent for corporates and individuals respectively, among other measures that have curtailed credit expansion.
Economist, Eddie Cross, said restricting the availability of the Zimbabwe dollar “could force dollarisation”.
Another economic commentator, Gift Mugano, said the high interest rates of 200 percent means businesses would be paying three times the principal amount. He said:
<blockquote>
There is no business that makes such margins, which can guarantee that kind of return that will give a business the capacity to pay back.
</blockquote>
Mugano also said businesses have already taken positions to convert their ZWL loans into US dollar loans, and this will result in the creation of artificial US dollars. He said:
<blockquote>
What it does is, we have new risks arising from that such as competitiveness challenges, the creation of artificial US dollars because when these loans are restructured into US dollar loans and new notes are given out, banks are charging interest rates and bank charges.
</blockquote>
| <a href="https://www.businessweekly.co.zw/economy-risks-fast-track-re-dolarisation/">Business Weekly</a>

RBZ Measures May Accelerate Full Re-dollarisation

The Confederation of Zimbabwe Industries (CZI) has said the current liquidity squeeze in the market has accelerated dollarisation as most transactions are now being done in United States dollars.
The Reserve Bank of Zimbabwe (RBZ) took measures to suck out liquidity in the market to curb inflation but that has caused a serious liquidity crunch in the economy, pushing banks and businesses to turn to the US dollar.
In its latest position paper, CZI said the country is moving closer to full dollarisation. It said:
<blockquote>
Foreign currency accounts (FCA) as a percentage of transferable deposits increased to 63% in July 2022 from 47% in January 2022.
This clearly shows that the US$ is becoming more dominant and Zimbabwe is moving closer and closer to full dollarisation.
</blockquote>
Economist Gift Mugano told Business Times that tight liquidity is pushing the local economy towards dollarisation, but added that the country has no capacity to fully dollarise. Mugano said:
<blockquote>
You are aware that before the increase of rates to 200% dollarisation was already in motion. With the central bank putting the interest rate at that level, you can only return the money if you are a thief, not a bona fide business person.
When we say we have dollarised we are saying we have a significant percentage that is being traded and we are not saying we have eliminated ZWL$.
The fact that we have not reached 100% dollarisation and the fact that we still face tight liquidity and subdued demand means that we don’t have the capacity as a country to fully dollarise.
We should see the demand increasing in US$ but when I talk to businesses they tell me that there is no upward increase in demand for sales in US$. The shares in US$ sales have increased but volumes of sales are not moving.
In as much as the US$ has the advantage of storing value and is the best currency for every economic agent but it has liquidity challenges on its own.
We are now in 2022 and our economy has grown to a US$20bn economy and things are now different from 2009 when our economy was very small.
</blockquote>
Mugano said despite being an attractive currency, the US dollar has its liquidity challenges, therefore there is a need to “save” the Zimbabwe dollar,
He said the local currency can be saved through increasing productivity in all sectors of the economy. | <a href="https://businesstimes.co.zw/zim-moves-closer-to-dollarisation/">Business Times</a>

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