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Economy edging toward full dollarization

Rufaro Siwela
Rufaro Siwela - Content writer
3 Min Read

The Zimbabwean economy is moving closer to full dollarization as reports indicate that the informal sector is increasingly rejecting the dual pricing system and opting to exclusively transact in United States dollars.

According to the latest data released by the Zimbabwe National Statistics Agency (ZimStat), a significant 83% of transactions for key food purchases nationwide were conducted in US dollars. The ZimStat report highlighted that rural areas recorded a higher percentage of transactions in US dollars at 85.6% compared to urban areas at 80.1%.

The remaining 17% of key food purchases at the national level were carried out in Zimbabwean dollars (ZWL$) and South African rand (ZAR), with 6.4% of transactions involving both US dollars and rand. Additionally, 5.4% of transactions were completed using a combination of ZWL$ and US dollars, while 1.7% were solely in ZWL$. Furthermore, 3.4% of transactions involved all three currencies: US dollars, local currency, and the rand.

The growing preference for the US dollar aligns with recent statements made by Deputy Minister of Finance, Economic Development, and Investment Promotion, Kudakwashe Mnangagwa. During a parliamentary session, Mnangagwa acknowledged that the informal sector was shunning the dual pricing regime. He emphasized that while the government allows businesses to display prices in either US dollars or the local currency, any rejection of the dual pricing system would contradict the law.

 

Mnangagwa highlighted the economic challenges stemming from inflation and exchange rate disparities, emphasizing the importance of the forthcoming monetary policy presentations by the Reserve Bank of Zimbabwe. He assured that government measures are being developed to address fundamental issues, including preserving the value of the local currency.

The Zimdollar has faced sharp depreciation against major currencies, leading to price hikes on basic commodities. Notably, the official exchange rate stands at 1:10,927 against the US dollar, 1:14,000 in supermarkets, and 1:16,000 on the parallel market. The Consumer Council of Zimbabwe reported a significant increase in the family basket cost, reaching ZWL$6.2 million from ZWL$3.6 million in December, attributed to ongoing Zimdollar depreciation.

President Emmerson Mnangagwa emphasized the government’s commitment to introducing policy measures aimed at curbing price escalations, stabilizing foreign exchange rates, and safeguarding the value of the Zimbabwe dollar during the first Cabinet meeting of 2024.

Economist Vince Musewe underscored the necessity for the government to address factors eroding confidence in the local currency before implementing stability measures. He emphasized that stable policies and addressing issues such as corruption, patronage, and political persecutions are vital to rebuilding trust in the local currency rather than attempting to control psychological perceptions through legislation.

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Economy edging toward full dollarization

The Zimbabwean economy is moving closer to full dollarization as reports indicate that the informal sector is increasingly rejecting the dual pricing system and opting to exclusively transact in United States dollars.

According to the latest data released by the Zimbabwe National Statistics Agency (ZimStat), a significant 83% of transactions for key food purchases nationwide were conducted in US dollars. The ZimStat report highlighted that rural areas recorded a higher percentage of transactions in US dollars at 85.6% compared to urban areas at 80.1%.

The remaining 17% of key food purchases at the national level were carried out in Zimbabwean dollars (ZWL$) and South African rand (ZAR), with 6.4% of transactions involving both US dollars and rand. Additionally, 5.4% of transactions were completed using a combination of ZWL$ and US dollars, while 1.7% were solely in ZWL$. Furthermore, 3.4% of transactions involved all three currencies: US dollars, local currency, and the rand.

The growing preference for the US dollar aligns with recent statements made by Deputy Minister of Finance, Economic Development, and Investment Promotion, Kudakwashe Mnangagwa. During a parliamentary session, Mnangagwa acknowledged that the informal sector was shunning the dual pricing regime. He emphasized that while the government allows businesses to display prices in either US dollars or the local currency, any rejection of the dual pricing system would contradict the law.

 

Mnangagwa highlighted the economic challenges stemming from inflation and exchange rate disparities, emphasizing the importance of the forthcoming monetary policy presentations by the Reserve Bank of Zimbabwe. He assured that government measures are being developed to address fundamental issues, including preserving the value of the local currency.

The Zimdollar has faced sharp depreciation against major currencies, leading to price hikes on basic commodities. Notably, the official exchange rate stands at 1:10,927 against the US dollar, 1:14,000 in supermarkets, and 1:16,000 on the parallel market. The Consumer Council of Zimbabwe reported a significant increase in the family basket cost, reaching ZWL$6.2 million from ZWL$3.6 million in December, attributed to ongoing Zimdollar depreciation.

President Emmerson Mnangagwa emphasized the government’s commitment to introducing policy measures aimed at curbing price escalations, stabilizing foreign exchange rates, and safeguarding the value of the Zimbabwe dollar during the first Cabinet meeting of 2024.

Economist Vince Musewe underscored the necessity for the government to address factors eroding confidence in the local currency before implementing stability measures. He emphasized that stable policies and addressing issues such as corruption, patronage, and political persecutions are vital to rebuilding trust in the local currency rather than attempting to control psychological perceptions through legislation.

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