Zimbabwe’s plan to drop US dollar in 2025 Seen as non-starter

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The US dollar will remain the dominant currency in Zimbabwe even after the government’s December 2025 deadline to stop its use in the economy, the country’s largest independent asset manager said.

Imara Asset Management, which oversees more than $100 million, said the dollarization of the economy is actually accelerating since authorities curbed the local currency’s availability in July to preserve its value. Data from the national statistics agency showed 80% of all economic transactions in Zimbabwe are now done in the greenback, up from 75% earlier this year.

“We are making the bold assumption that the US dollar will remain in place for a good while yet,” wrote John Legat and Shelton Sibanda, the company’s chief executive officer and chief investment officer, wrote in a quarterly note to clients Thursday. “The loss of the use of the US dollar would be a disaster for the economy.”

 

The Zimbabwe dollar has had a rocky history. The southern African nation abandoned it in 2009 when hyperinflation set in, and turned to the US dollar as the main medium of exchange. The currency was reintroduced in June 2019, outlawing all other legal tenders including the greenback. But again, that policy policy was reversed in April 2020 following the onset of the coronavirus pandemic. The government currently plans to allow the use of the US dollar until December 2025 and no more.

Read More: Gold-Backed Currency Is Zimbabwe’s Way to Sway Love for Dollars

The uncertainty over the next currency regime has forced banks to be cautious on lending beyond 2025. That’s raised borrowing costs for businesses and individuals and also curtailed the availability of funding for long-term investments. Previously, US dollar loans from banks were paid off in the local currency, with lenders suffering losses from the foreign-exchange volatility.

Finance Minister Mthuli Ncube said last week that authorities were “mulling over” the next steps on the currency policy. “We will not do things in a manner that will jeopardize the growth that we have seen so far,” said Ncube.

Zimbabwe’s President Emmerson Mnangagwa has fiercely defended a return to the sole use of the Zimbabwe dollar.

Meanwhile, Imara also cast doubt on the gold-backed digital money, the so-called “ZiG” launched earlier this month. It said there is no proof that the ZiG is either backed by any physical gold or can be converted into gold and is largely a “project” of the central bank.

“Whether the ministry of finance also supports the concept is still relatively unknown,” the Harare-based brokerage said.

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