Zimbabwe needs over $2.5 billion in foreign currency reserves to fully de-dollarize, the government revealed. This disclosure comes as President Emmerson Mnangagwa hinted at removing the U.S. dollar if the new currency, Zimbabwe Gold (ZiG), remains stable and grows in value.
Last year, the government announced a clear plan to move away from using the U.S. dollar to prevent exchange rate volatility. This plan involved introducing ZiG in April, backed by commodities and forex. The Treasury and the central bank are expected to implement supportive policies to strengthen ZiG and gain international acceptance, leading to the scrapping of the multicurrency regime.
However, the market overwhelmingly prefers forex. Several companies adopted the greenback as a reporting currency after ZiG’s introduction. Finance, Economic Development, and Investment Promotion Deputy Minister David Mnangagwa stated, “To achieve 100% de-dollarization, we need at least $2.5 billion in reserves, whether in gold or cash.”
Zimbabwe initially intended to end the use of the U.S. dollar in 2025 but extended it to 2030. The change was due to foreign currency holders taking a hold position, resulting in liquidity drying up. Since ZiG’s introduction, the Treasury and the central bank have restricted the local money supply to prevent inflation, creating a liquidity crunch. Forex holders are thus holding onto their foreign currency.
“We need to ensure the $2 billion circulating in the economy is accounted for by raising our reserves, ensuring fungibility between ZiG and the U.S. dollar,” Mnangagwa explained. Currently, ZiG accounts for less than 20% of all transactions, with the U.S. dollar remaining dominant. Mnangagwa added that further measures to stabilize ZiG would be included in the upcoming 2024 national budget review.
The need for $2.5 billion in reserves is critical. “We need to make sure that all money in circulation is fully covered,” Mnangagwa emphasized. The government must bolster ZiG to avoid returning to inflationary pressures. “Increasing our stockpile of reserves to about $2 billion is necessary to immediately de-dollarize,” he added.
The government’s dedication to making ZiG a viable currency is evident. Measures to stabilize ZiG will feature in this week’s national budget review. “As Treasury, it is our intention to have a deliberate program to bolster ZiG,” Mnangagwa said. The mid-term review will introduce robust measures to show the government’s commitment.
Despite challenges, the government is pulling out all the stops to achieve de-dollarization. Mnangagwa’s administration is under scrutiny from both local and international observers. The government’s approach contrasts with market preferences, raising questions about the feasibility of full de-dollarization.
The future of Zimbabwe’s currency remains uncertain. The government’s ability to accumulate the necessary reserves and gain public trust in ZiG will be pivotal. As Zimbabwe navigates this complex transition, the global community watches closely. The success of Zimbabwe’s de-dollarization efforts could set a precedent for other nations facing similar challenges.
Zimbabwe’s path to de-dollarization is fraught with hurdles. However, with strategic planning and international support, the country aims to stabilize its economy. The government’s commitment to bolstering ZiG and addressing liquidity issues is crucial. The upcoming budget review will provide further insights into the country’s financial strategy.
Zimbabwe’s journey towards de-dollarization hinges on securing $2.5 billion in reserves. The government’s plans to strengthen ZiG and reduce dependence on the U.S. dollar are ambitious. The international community remains watchful as Zimbabwe strives for economic stability. With robust measures in place, Zimbabwe hopes to achieve its de-dollarization goals.
Source: Newsday
