Economist Gift Mugano Warns Dollarisation Is Imminent

Economist Gift Mugano has said Zimbabwe is expected to dollarise its economy because of the collapse of the local currency and the failure of its auction system to stabilise the exchange rate.

Mugano, who is director for Africa Development Economic Strategies, made the remarks at a pre-budget seminar for MPs in Harare in his presentation titled The State of the Economy: Are We On Course Towards Achieving the Aspiration under the National Development Strategy 1? He said:

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Although the auction system at its inception managed to foster economic instability, in recent months it has faced several threats and risks mainly coming on the back of exchange rate disparities, that is approximately (official) US$1:$88 versus the parallel of US$1:$190.

RBZ [Reserve Bank of Zimbabwe] responses inter alia include US$50 weekly disbursement to individuals, management of money supply and clearing of the forex backlog and cracking of black market dealers. These measures are not sufficient to deal with the black market rate since the root causes are centred on supply of forex (structural issues), corruption on the forex markets and the command economy. If these factors are not addressed, the auction system is holding on a thin thread and its collapse is imminent and we will enter into dollarisation (100%).

On Friday, banker and former Finance deputy minister Terrence Mukupe told Finance minister Mthuli Ncube to consider adopting the South African rand claiming the official forex auction had failed.

In June 2019, the Reserve Bank of Zimbabwe reintroduced the Zimbabwe dollar and banned the use of foreign currencies as legal tender putting an end to a decade-long use of multicurrency.

Authorities later loosened the regulations to allow the use of foreign currency following difficulties associated with the use of the local currency alone.

More: NewsDay

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