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Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, has reiterated government’s commitment to a phased de-dollarisation programme, insisting that the reintroduction of the national currency is essential for economic recovery.
Mtuli, who recently presented the 2024 mid-term budget review in Harare, declared that the de-dollarisation process was “well underway” towards a “single currency regime” backed by the stable Zimbabwe Gold (ZiG).
“The phased de-dollarization plan is well underway and is aimed at re-establishing a single currency system backed by the national currency, stimulating domestic production, boosting exports and making local products more competitive in the international market,” Mtuli said.
The implementation of the Zimbabwe Gold Plan in April 2024 has been hailed as a major step towards stabilising the economy. However, the minister acknowledged that maintaining such stability would require a multifaceted approach.
“Maintaining medium- to long-term stability requires continued implementation of policy reforms, effective management of liquidity injections into the market, and creation and supply of foreign exchange to the economy,” he said.
Building public confidence in the new currency is critical to the success of the de-dollarization process.
“In addition, we will develop confidence-building measures and communicate them clearly to the market to increase trust, acceptance and usage of our national currency,” the minister added.
Recognizing the challenges posed by an imperfect financial sector, lingering economic trauma, and eroding public trust, the government pledged to take a pragmatic and market-based approach to stabilizing the currency.
“The policy framework to support the currency will include a pragmatic and market-based approach to exclude negative perceptions and adverse expectations that have undermined policy effectiveness in the past,” Mtuli said.
To enhance credibility, the government will maintain a sufficient supply of ZiG notes and coins while safeguarding the value of the currency.
“The number of ZiG notes and coins will always be maintained at an optimal level in order to balance transaction convenience and maintain the local currency’s store of value properties,” Mthuli said.
In addition to stabilizing the currency, the government has also outlined a broader macroeconomic strategy. This includes restructuring the national debt, tightening monetary policy and increasing domestic tax revenues.
“Restructure the national debt to reduce servicing costs and align with budgetary capacity; effectively manage liquidity injections into the market through the Liquidity Management Committee; take steps to strengthen demand for and use of the national currency by the government, business community and the public; and gradually switch the mix of foreign and local currencies in the economy as part of the de-dollarization strategy,” Mthuli said.
Fiscal discipline is also an important part of the plan.
“We will undertake fiscal consolidation measures, including domestic revenue mobilization and asset disposal, to ensure sustainable financing of the fiscal deficit and avoid reliance on central bank overdraft measures which would be inflationary and counterproductive,” he added.
The Minister reiterated the government’s commitment to a market-based foreign exchange system and pledged to deepen financial markets.
“Continued improvement in the functioning of the market-based willing-buyer-willing-seller foreign exchange market; and measures to deepen monetary and capital market activities and promote the use of long-term financial instruments in the economy,” he said.
While the government’s determination to restore its national currency is clear, the path forward is fraught with challenges. Critics argue that the experience of hyperinflation has eroded public trust in the local currency, making the transition to a single currency system a difficult task.
Although Mtuli has yet to unveil a de-dollarization roadmap, analysts say the success of the de-dollarization plan will depend on the government’s ability to implement consistent policies, restore confidence and address potential economic challenges.
“There is now a roadmap for de-dollarization in terms of how the ZiG currency can be used as legal tender in the economy,” Information, Publicity and Broadcasting Services Minister Jenfan Muswere told reporters after a cabinet briefing earlier this month.
Source: Business Week
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