Published by the government of Zimbabwe
John Kachembere
14 December 2008
Harare — INDUSTRIALISTS have called for the complete dollarisation of the economy as a quick way to contain ever-escalating prices of goods and services.
This follows a trend that has developed that whenever cash withdrawal limits increase, the Zimbabwe dollar depreciates further against major currencies, pushing prices of goods and services far beyond the reach of many.
Cash withdrawal limits went up last Friday to $500 million from $100 million per week, and people have now resorted to buying foreign currency to hedge against hyperinflation.
Confederation of Zimbabwe Industries president Mr Kumbirai Katsande said the use of all currencies in the economy would bring stability in the economy.
"The economic state we are in is totally unstable resulting in few people having confidence in the local currency," Katsande said in an interview recently.
"It is imperative, therefore, for the authorities to allow all currencies to be used to ensure a steady inflow of goods into the country."
An official with the Zimbabwe National Chamber of Commerce said the main attraction of full dollarisation would be the elimination of the risk of a sudden sharp devaluation of the local currency.
"An immediate benefit emanating from the elimination of the risk of devaluation is a reduction in the country risk premium on foreign borrowings and obtaining lower interest rates for the government and private investors.
"Low interest rates and stability in international capital movements cut the cost of servicing public debt, and encourage higher investment and economic growth," said the official.
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True, but that inflationary pressure is miniscule compared to the inflationary pressure created by continuously printing more money. Each time Goono prints another wad of money it creates inflation. Dollarizing the economy would remove that tool from his control and prices could begin to assume their true real world value, instead of the current RBZ-created "fantasy," value.
I'll tell you why it won't happen, because doing so would remove Mugg-abe's most powerful means to fund his illegal and unconstitutional activities. It's analogous to the situation over Home Affairs. Mugg-abe will never let the MDC have the power to use the… [Read Full Text]
This only works when the supply and demand for foreign currency remains in equilibrium. The fact that Zimbabwe's exports have collapsed means that there will never be sufficient forex earned to meet demand; the underlying inflation will be felt in the exchange rate as we are already seeing.