Dollarisation and optimal dollarisation framework for Zimbabwe

Abstract

The Zimbabwean economy was officially dollarised in March 2009. The Finance Act of 2009 officially terminated the Zimbabwe dollar as an official transacting currency in Zimbabwe. However, prior to this official dollarisation, most of the transaction were already being conducted in foreign currencies. The adoption of dollarisation facilitated the restoration of macroeconomic stability, as evidenced through taming inflation, improvement in industry capacity utilisation and some improvement on social services, among many other positive strides.

Given some modicum of economic stability realised since 2009, this research therefore seeks to investigate whether the economy is now ready for the return of the local currency and to develop an appropriate de-dollarisation framework. The route to de-dollarisation being recommended requires that the government focuses on addressing the conditions precedence to de-dollarisation. These preconditions were identified as enhancing competitiveness, institutional reforms, realignment of government expenditures, improving current account performance, central bank independence, political stability and resolving the country’s external debt position. An evaluation of the above indicators since 2009, indicate that sufficient progress to facilitate de-dollarisation has not yet been made. Once these are addressed, a market based approach entailing the reintroduction of the Zimbabwe dollar in parallel to the US dollar be adopted.