Zimbabwe Excited Over the Extension of Multi-currency System

By Xinhua 

October 30, 2023

A street money changer counts South African Rands in Harare, Zimbabwe, May 5, 2016. 

Zimbabwean businesses have welcomed the move to extend the U.S. dollar-dominated multi-currency system by five more years until December 2030.

Zimbabwean President Emmerson Mnangagwa declared the decision to extend the use of foreign currencies in settling domestic transactions in a Statutory Instrument gazetted on Oct. 27, which overrode an earlier regulation that had set 2025 as the end period of the multi-currency system.

The 2025 deadline and recent official pronouncements on the impending return of the Zimbabwean dollar as the sole legal tender had brought uncertainty in the financial markets, leading many banks to suspend lending in foreign currency.

Confederation of Zimbabwe Retailers (CZR) President Denford Mutashu said the move is expected to give businesses assurances to plan ahead.

“The financial institutions, which have cut mortgages due to uncertainties surrounding the multi-currency system can now extend long-term loans to ramp up production and stimulate economic growth,” Mutashu said in a statement dated Oct. 28.

“CZR believes that through engagements with the government, policy frameworks can be changed for the betterment of the business and the economy at large and looks forward to more candid discussions with the authorities to achieve national growth,” reads the statement.

Economist and member of the Reserve Bank of Zimbabwe Monetary Policy Committee (MPC) Persistence Gwanyanya said the rationale is to nurture confidence whilst supporting increased Zimbabwe dollar usage.

“However, monetary authorities should seek to reduce U.S. dollar dominance in the multiple currency regime. MPC has already issued measures to support this, which include further liberalization of the forex market,” Gwanyanya said on X, formally Twitter.

“The approach is to incentivize the market towards Zimbabwe dollar preference. The ideal situation is for the market forces to dictate de-dollarization,” Gwanyanya added.

Zimbabwe adopted a multi-currency regime in 2009 to bring stability to the economy following years of hyperinflation.

The use of foreign currencies was outlawed in June 2019 with the introduction of the Zimbabwe dollar as the sole legal tender, but the policy was reversed in April 2020 following the outbreak of the COVID-19 pandemic.

The local dollar rapidly depreciated against the U.S. dollar, with annual inflation reaching triple digits in June.

According to statistics agency ZimStat, year-on-year inflation fell marginally to 17.8 percent in October from 18.4 percent recorded the previous month.

On Oct. 5, the central bank introduced a new gold-backed digital currency as an additional payment method to complement other forms of domestic transacting currencies in the economy.

“By serving as an alternative payment, the expectation is that it will probably lessen the high demand for the U.S. dollar because currently about 85 percent of transactions in Zimbabwe are being done in U.S. dollar,” economist Prosper Chitambara has told Xinhua.

Economic analyst Zvikomborero Sibanda said policy inconsistencies might discourage the public from adopting the new gold-backed digital currency.

In addition, “we lack adequate infrastructure right now to support these advanced technologies which are key in ensuring gold production, tracking and monitoring so that we minimize chances of gold leakages and illicit trading,” Sibanda told Xinhua.