Zimbabwe needs $2.5 billion in reserves to achieve full de-dollarization – Zimbabwe Post

Harare,– The Zimbabwean government has revealed that Zimbabwe needs more than $2.5 billion in foreign exchange reserves to completely break away from its reliance on the U.S. dollar, challenging any expectations of de-dollarization in the near term.

The announcement came as President Emmerson Mnangagwa hinted that the dollar could be phased out if the new currency, the Zimbabwe Gold (ZiG), remains stable and appreciates.

Last year, the government presented a transparent plan to shift away from the dollar to mitigate exchange rate volatility. The strategy included the launch of the ZiG, backed by commodities and foreign exchange, in April. The Ministry of Finance and the central bank are tasked with implementing policies to strengthen the ZiG, aiming to make it internationally accepted and eventually phase out the multi-currency system.

However, the market still favors foreign currencies, and even after the launch of ZiG, many companies still use the US dollar as their reporting currency.

“There is about $2.3 billion in circulation, of which about $2 billion is in U.S. dollars and $300 million is in Zimbabwe dollars,” Deputy Minister of Finance, Economic Development and Investment Promotion David Mnangagwa said at the Zimbabwe Institute of Chartered Accountants’ Winter School in Victoria Falls on Friday.

“To achieve 100% de-dollarization, we need at least $2.5 billion in reserves – either in gold or cash – to cover all currencies in circulation. If we increase our reserves to around $2 billion, we can de-dollarize immediately,” Mnangagwa added.

Zimbabwe initially planned to stop using the U.S. dollar and other foreign currencies by 2025. But that deadline was extended to 2030 due to liquidity problems that arose during the initial de-dollarization effort.

Since the introduction of ZiG, the government has been controlling the supply of local currency to avoid inflation, leading to a liquidity crunch and prompting foreign exchange holders to hold on to foreign currencies.

“We need to increase reserves to absorb the US dollar and ensure fungibility between the Zimbabwe dollar and the US dollar so that the $2 billion circulating in the economy is accounted for,” Mnangagwa said.

According to official statistics, ZiG currently accounts for less than 20% of all transactions, and the US dollar still dominates.

Mnangagwa stressed that large reserves were needed to absorb the U.S. dollar and increase the circulation of Zimbabwean dollars to avoid inflationary pressures.

“If we increase our reserves to more than $2 billion, we can stabilize the economy and promote de-dollarization,” he said.

Mnangagwa noted that the upcoming 2024 national budget review will include more measures to stabilise Zimbabwe’s economy.

“The Treasury and government intend to implement a well-thought-out plan to strengthen ZiG,” he said. “Minister Mthuli Ncube is expected to present a mid-term review next week, at which time strong measures will be put in place to demonstrate our commitment.”

Source: News Day

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