Zimbabwe’s central bank said Monday it is encouraged by the positive de-dollarization process that has been taking place since the country banned use of multiple currencies in June last year.
Reserve Bank of Zimbabwe Governor John Mangudya said it could take up to five years for the country to completely de-dollarize, noting that foreign currency deposits as a proportion of money supply went down from about 50 percent to 37 percent by Dec. 31, 2019.
He was presenting the 2020 monetary policy statement.
“The bank believes that the macro-economic signals that include fiscal and monetary discipline, prospects of positive economic growth and lower inflation are improving to support a gradual de-dollarization process within a timeframe of five years. This is in line with other countries’ experiences on de-dollarization,” said Mangudya.
He said use of local currency for transacting purposes had also continued on an upward trend, reaching 459.6 billion Zimbabwe dollars this year from 189 million transactions for the whole of 2019.
“These measurements of the proportion of the use of the local currency in the economy show that the country is on a right trajectory to de-dollarization.
“The bank shall therefore continue to provide incentives to promote and defend the use of the local currency within the economy in order to support the de-dollarization,” Mangudya said.
Zimbabwe in June last year banned use of nine foreign currencies, including the dominant U.S. dollar which had been in use in the country since 2009, and re-introduced the Zimbabwe dollar that had been discarded in 2009.
At the official inter-bank market, the Zimbabwe dollar debuted at 2.50 against the U.S. dollar, but it has since devalued to 17 against the greenback.
Some businesses and individual traders continue to charge for their goods and services in U.S. dollars, against government policy on the ban of the U.S. dollar.
Meanwhile, the governor said the bank had imported an additional 150 million Zimbabwe bank notes and coins in the last quarter of last year to alleviate acute cash shortages in the economy.
This had given a total of 1.1 billion Zimbabwe dollars cash in circulation as at Dec. 31, representing about 3.2 percent of total banking sector deposits of 34.5 billion dollars.
Mangudya said the bank will gradually increase notes and coins to the desired optimum proportion of bank notes and coins in circulation of up to 10 percent of deposits.
“Moreover, the bank will gradually introduce notes in larger denominations to improve efficiency and convenience to the public,” he said.