Zimbabwe is gradually moving away from using the US dollar, aiming to strengthen its own currency, the Zimbabwe Gold (ZiG). This process will take time, but progress is being made.
The 2024 Mid-Term Fiscal Policy introduces a plan to stabilize ZiG, which is backed by gold and foreign currency reserves. Part of this plan is to increase the use of ZiG for everyday transactions.
One key measure is requiring small businesses to pay taxes in ZiG, even if they do business in foreign currencies. This is significant because small businesses, which make up a large part of the economy, often deal in foreign currency. Additionally, businesses that earn over half their revenue in foreign currency must pay half their taxes in ZiG.
By requiring taxes to be paid in ZiG, the government hopes to increase demand for the local currency. Economist Gladys Shumbambiri-Mutsopotsi sees this as a positive step, as it encourages the use of ZiG and supports its stability.
Other measures include paying duties on non-essential imports in ZiG and requiring government agencies to charge certain fees in ZiG. The government aims to complete the transition away from the US dollar in the next two years.
Economist Carlos Tadya notes that while there is skepticism about ZiG’s future, the currency’s stability since its introduction in April 2024 is promising. He emphasizes that de-dollarization is a slow, careful process that will take years.
Analysts agree that this transition needs a comprehensive approach, including boosting local production to reduce reliance on imports. Increasing access to credit and savings is also crucial to supporting the economy and promoting the local currency.
Using local currency has benefits, such as giving the Reserve Bank more control over economic growth. It also helps make local products more competitive, as foreign currencies like the US dollar are often too strong and increase production costs. Additionally, earning foreign currency requires exports, limiting credit creation needed for boosting production.
A stable local currency inspires confidence, fosters investment, and supports individual potential. Key investments in agriculture, mining, and manufacturing, along with revitalizing state-owned enterprises, are essential for this transition.
The Mutapa Investment Fund, a newly established sovereign wealth fund, is seen as vital for economic stability. The International Monetary Fund (IMF) highlights the need for strong governance of this fund to ensure it aligns with the National Development Strategy and maintains transparency and accountability.
Adding value to minerals through beneficiation is also important to protect the economy from global price drops, which have previously hurt national earnings.
Zimbabwe experienced hyperinflation in the mid-2000s, leading to the collapse of its currency and the adoption of the US dollar in 2009. This stabilized the economy until the reintroduction of the local RTGS dollar in 2019, which quickly lost value, causing economic instability again. The current efforts aim to build a more stable and self-reliant economy with the ZiG.
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