Zimbabwe's central bank is cautious about making the local currency the sole legal tender, as citizens still lack confidence in its stability and fear potential losses. Governor John Mangudya acknowledges that the public perception and mindset towards the currency need to change, and a comprehensive study is necessary before any decision is made.
The Zimbabwe dollar has had a tumultuous past. It was abandoned in 2009 following a severe bout of hyperinflation, and the country relied heavily on the US dollar. Reintroduced in June 2019, the Zimbabwe dollar became the sole currency, but this policy was reversed in April 2020 due to the economic impact of the coronavirus pandemic.
Amidst concerns and uncertainties, the local currency saw an 84% decline against the US dollar in the official market in May. However, the government's decision to liberalize the exchange rate and mandate the settlement of corporate taxes in the domestic currency brought about a recovery. Currently, one US dollar can be exchanged for 4,523 Zimbabwe dollars, compared to 6,926 prior to the recent changes.
Despite these gains, there are still doubts about the long-term viability of the Zimbabwe dollar. Many argue that the prevailing multi-currency system renders the local currency irrelevant, as consumers have little incentive to hold or transact in it. Imara Edwards Asset Management, the country's oldest brokerage firm, expressed concern about another premature legislated use of the Zimbabwe dollar, emphasizing the need for policy consistency.
Zimbabwe's current laws allow for the continued use of the US dollar until 2025. While the US dollar still dominates approximately 75% of transactions, Governor Mangudya acknowledges that fully dollarizing the economy is not possible due to insufficient capacity.
In order to strengthen confidence in the local currency, the central bank believes that policy consistency, third-party endorsements, and increased public awareness of the benefits of the Zimbabwe dollar are essential. A cautious and comprehensive approach is necessary before considering making the local unit the sole legal tender.