Home » Industry » Dollarisation the New Normal – RBZ

Reserve Bank of Zimbabwe Governor Dr John Mangudya says the lack of competitiveness and negative perception besetting the economy were not a currency problem, but a production phenomenon.The RBZ chief said to succeed under dollarisation, the country needed to go back to basics, a process which might be painful, but a necessary strategy that requires the country to hold on and push back in a number of areas.

That includes pushing back costs bank charges, electricity, water, rates, to drive national competitiveness and recovery of domestic industry under a value system of transparency, accountability, integrity and patriotism.

He said that there was need for simultaneous mobilisation of financial resources to increase investment, production, exports and create employment.

The country also needed deep integration, he said, into the global economy through simplified and improved ease of doing business conditions.

Dr Mangudya made the remarks while delivering a public lecture on monetary policy under a multi-currency system at the University of Zimbabwe last week.

“Usage of foreign exchange as our domestic currency is the new normal. Dollarisation is therefore, our new normal for stabilising and growing the economy,” he said, adding “I see Zimbabwe as an awakening giant.”

The RBZ boss said everyone should rally behind the national vision to transform the economy through beneficiation and empowerment of the majority.

This, he said, implied creating more jobs, ensuring high productivity, growth of exports, high investment and building confidence in the economy.

The governor’s comments come as Zimbabwe, which dollarised in 2009, battles slow economic growth and recovery due to limited production and uncompetitiveness caused by unsustainable cost structures.

“It is critical to appreciate this hypothesis to avoid spending our national energy on focusing on non-economic fundamentals,” Dr Mangudya said.

Dr Mangudya said while dollarisation had its positives, it brought with it a number of challenges including distorted pricing mechanisms, high margins expectation, high interest rates and limited fiscal space among others.

Further, the multi-currency system, dominated by the US dollar, brought about loss of independent or autonomous monetary policy, limited instruments to influence the market and eliminated lender of last resort function.

The RBZ boss identified the positives from dollarisation as economic stability, confidence during early stages of dollarisation, signs of recovery, low and stable inflation and confidence in the banks (deposit growth).

However, Dr Mangudya said dollarisation did not impede the ability of the central bank to provide short-term liquidity support as shown by the security backed facility for the resumption of interbank it secured from Afreximbank.

Zimbabwe secured a $200 million facility from the interbank to resuscitate an interbank that ceased in 2009 and banks would not lend to each other due to liquidity crisis and fear of the inherent risk in the market.

He said it also does not impede the central bank from instituting reserve requirements, currently suspended, but impairs its ability to fully guarantee the banking system through lender of last resort function.

“Dollarisation does not impede a central bank from managing banks and putting in place prudential banking and payment regulations,” he said.

Dr Mangudya said that, in fact, dollarisation required reserve banks to put in place strict regulation frameworks for monitoring bank practices, credit guidelines, payment arrangements and currency utilisation.

Source : The Herald