Zimbabwe plans to stop using the US dollar in five years. This decision is causing concern in an economy that has faced currency instability for nearly two decades.
Harare aims to end the use of the US dollar by 2030. The US dollar has been Zimbabwe’s main foreign currency for 16 years. The country abandoned its own currency due to hyperinflation.
On August 6, 2024, Zimbabwe announced a roadmap to adopt the Zimbabwe Gold (ZiG) as its sole currency. The ZiG, backed by gold, was launched last year. This marks Zimbabwe’s sixth attempt at establishing a stable currency in 25 years.
Initially, authorities planned to de-dollarize by 2026 but have now extended this target to 2030. The central bank acknowledges that businesses are anxious about returning to a single-currency system. As a result, banks are hesitant to offer long-term loans beyond this date.
John Mushayavanhu, governor of the Reserve Bank of Zimbabwe (RBZ), will announce a detailed de-dollarization plan in November. This move aims to ease concerns among businesses and investors.
Dr. Mushayavanhu stated that the roadmap will focus on preserving foreign currency accounts and existing US dollar contracts. It will also ensure business continuity and certainty during the transition.
The central bank is working on modernizing ZiG banknotes to improve acceptance of the new currency. Dr. Mushayavanhu emphasized maintaining stability while transitioning away from the US dollar.
The Confederation of Zimbabwe Industries (CZI) believes controlling inflation is crucial for successful de-dollarization. They argue that low inflation levels can build trust in ZiG and encourage its use in transactions.
High inflation creates uncertainty for businesses regarding pricing and contracts. After an IMF consultation in June, experts noted that Zimbabwe’s transition plan remains unclear.
The IMF advised urgent measures to boost demand for ZiG and implement necessary reforms for success. They stressed strengthening monetary frameworks aligned with their recommendations.
Currently, only 40 percent of transactions occur in local currency since introducing ZiG over a year ago. Economic analysts say confidence issues and a large informal economy hinder the new currency’s success.
John Lagat from Imara Asset Management believes ZiG may fail like previous currencies due to limited market relevance. He noted that it’s easier for people to use US dollars or bank cards instead of ZiG.
In southern Zimbabwe, many prefer using South African rand over ZiG or US dollars. In Harare, however, some civil servants receive part of their pay in ZiG but struggle to spend it effectively.
According to the IMF, only four out of 85 countries successfully de-dollarized between 1980 and 2001, making Zimbabwe’s goal challenging.
Zimbabwe’s currency troubles began in 1997 when its local dollar crashed after unbudgeted pension payments were made by Robert Mugabe’s regime. The situation worsened with military involvement in Congo and chaotic land reforms starting in 2000.
By 2009, hyperinflation peaked at an astonishing rate before abandoning the local dollar altogether; this marked an end after adopting the US dollar as legal tender.
