Zimbabwe re-introduced its local currency earlier than scheduled because the market was rapidly re-dollarizing, putting more pressure on the government, finance minister Mthuli Ncube said Monday.
Ncube told a business meeting that the government had to move fast to correct the situation that was becoming untenable.
President Emmerson Mnangagwa had previously said Zimbabwe would re-introduce its currency by year end, after having dumped it in 2009 after it was rendered worthless by a decade of hyperinflation.
“Re-dollarisation required conversion of salaries to U.S. dollars. Given the tight fiscal space and that we do not print U.S. dollars, we would not be able to do that,” Mthuli said.
“That is one of the reasons why we thought we should move faster on the introduction of the Zimbabwe dollar, not that it was not on the cards but we had to move faster,” he said.
In an abrupt move, the finance minister last month banned use of the U.S. dollar and other foreign currencies for domestic transactions, and re-introduced the Zimbabwe dollar as the sole legal tender, effectively ending the multi currency regime that had been in existence since 2009.
The Zimbabwe dollar is currently made up of the electronic RTGS dollars, bond notes and bond coins.
The return of the local currency follows the introduction in February of the foreign currency inter-bank market where the Zimbabwe dollar is expected to trade at market rates.
After debuting at 2.50 to 1 U.S. dollar in February, the local unit is now trading at about 8.5 to the greenback, compared to a black market rate of 9.
Monetary authorities believe the competitive rates on the official market will help to tame the black market whose rates had risen to as high as 16 to 1 U.S. dollar before re-introduction of the local currency on June 24.
The runaway black market rates were fuelling price increases and inflation, leaving most basic commodities beyond the reach of the majority.
But since the ban on use of the green back and introduction of the local currency, prices of most basic commodities have started to go down, bringing some relief to consumers.
However, the nation continues to grapple with severe shortages of fuel, power and medical drugs amid a serious shortage of foreign currency.