By Business Reporter
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya yesterday stated that the country’s exchange rate volatility was caused by historical factors rather than fundamental economic issues, as he rejected the idea of dollarisation.
Recent weeks have seen Zimbabwe grappling with significant fluctuations in the exchange rate, leading to calls for complete dollarisation.
Speaking at the annual conference of the Chamber of Mines of Zimbabwe (CoMZ) in Victoria Falls, Mangudya firmly opposed the notion of dollarisation, citing the country’s inability to implement such a system.
“Thirty percent of our deposits in this country are Zimbabwe dollars, 70% is US dollars. That’s the composition of our deposits in this country. But when you see the rate moving because of the Zimbabwe dollar, that’s because of the self-fulfilling negative inflation expectations,” he said.
“There is the hysterical scenario or otherwise the once beaten, twice shy scenario, whereby people were beaten before by hyperinflation in 2008 and were beaten also in 2019 when we came up with new currency reforms. Human beings are rational.
“So, because human beings are rational, they always think about the negative of whatever they would have seen. So, what they do whenever they get excess of the local currency, they try to go and buy foreign currency in the parallel market. The demand for foreign currency in a dual currency system is unlimited.”
He continued: “It’s only limited to the extent of the foreign currency which you are carrying because you want to convert it. That’s what’s happening. It’s not an economic fundamental challenge. It’s a behaviour which is based on past experiences.
“So, I am saying to colleagues, let’s believe in ourselves that we’ve worked very hard in the mining sector. We don’t want to throw the baby away with the bath water. We’ve worked very hard as a country to get where we are today.”
Mangudya further cautioned against dollarisation, considering the challenges local companies would face in competing under the African Continental Free Trade Area.
He clarified that the foreign currency held by the banks belonged to the exporters and could not be used to dollarise the economy due to the lack of capacity.
The largest exporting companies in Zimbabwe, according to Mangudya, were Zimplats, Unki, and Mimosa, followed by gold companies.