Renowned economic commentators, Gift Mugano and Anthony Hawkins have urged the Government to accept that the Zimbabwe dollar has been rejected by the market and re-dollarise the economy.
This comes as annual inflation rose to 131.7% in May, from 96% in April, according to the Zimbabwe National Statistics Agency (ZimStat).
The local currency has also depreciated against the United States dollar on the official market, falling to US$1:$290 by Tuesday, compared to US$1:$258 the previous week.
Mugano projected that the domestic currency will dead by June this year, adding that the Government itself is rejecting the Zimdollar and has opted for the US dollar. Said Mugano:
We are increasing our debt and we won’t be able to defend our currency. Even the government does not want to use its own currency.
It paid bonuses in US dollars, it is paying COVID-19 allowances in US dollars, and tollgates are now paid in US dollars.
We are not qualified to fight for the Zimbabwe dollar because the government itself wants the USD.
In fact, the market has dollarised, we are at a funeral, and we are going to the grave to bury the Zimbabwe dollar.
Mugano said when the country de-dollarised in 2019, after a decade of a multi-currency system, the economy was not ready for the local currency. He said:
The strength of the currency is reflected in its productive capacity. You do not go and support the local currency at a rally and campaign for it, you need production.
The second aspect is you must have fiscal consolidation. You must not have debt because when you have a growing debt then you also have vulnerabilities in the economy when the currency is attacked.
Hawkins argued that dollarisation would be painful but it is the only way to tame runaway inflation. He said:
The public doesn’t want to hold the Zim dollar. Yes, dollarisation would be painful, no doubt. But will it be more painful than an inflation rate of 400%?
The opponents of dollarisation will tell you that this is because saboteurs are destroying the local currency. That is not the case.
People are acting rationally, they are trying to protect their livelihoods, they are trying to protect their pensions, and they are trying to protect their savings from the predatory policies that are being followed at the moment.
The exchange rate is a reflection of what is happening in the economy.
Another economist Persistence Gwanyanya, however, warned against full dollarisation. He said:
Every one of us would want some dollars in his pocket now and every business may want to have the economy dollarised, but it is not the most effective currency option.
Dollarisation is costly. The Justice Smith Commission established that we need to compensate about $5 billion for the loss that occurred in 2009.
Right now we have got about $277 billion in the accounts. When we dollarise we need to first convert all those into US dollars or people will have to lose that.