The government of Zimbabwe has revealed that the nation needs more than $2.5 billion reserves of currency to completely remove and phase out the United States Dollar (USD). This announcement by the government confirms the sentiments that the demonetization process can be undertaken immediately.
The announcement comes at a time when the nation’s President Emmerson Mnangagwa pointed and hinted at a potential removal of the US dollar in circulation if the new currency, the ZiG increases in value and remains stable.
In 2023, the government laid out a clear and mapped out a transparent plan to move away from the US dollar in order to prevent continued exchange rate volatility which has been experienced in the nation. This plan involved introducing the ZiG as the official local currency, which debuted in April and is backed by commodities and foreign exchange. The central bank is now in the stage where it is expected to implement supportive structures and policies to strengthen the local currency and make it internationally accepted, leading to the eventual scrapping of the multi-currency regime the country has been experiencing for a long time now.
However, this objective has been challenging, as the market continues to overwhelmingly prefer foreign currency, with several companies adopting the US dollar as a reporting currency even after the introduction of the ZiG.
"What that means is that to be able to have 100% demonetization, we need at least $2.5 billion within our vaults, whether it's in gold or cash, to ensure that all the money in circulation is fully covered," said Finance, Economic Development and Investment Promotion Deputy Minister David Mnangagwa during the Institute of Chartered Accountants of Zimbabwe Winter School in Victoria Falls last Friday.
Zimbabwe initially intended to end the circulation of the USD as well as the other foreign currencies by 2025, but later extended the deadline to 2030. The reason for this extension was because of the foreign currency holders taking a wait-and-see approach, resulting in a near-drying up of liquidity in the market.
Since the introduction of the ZiG, the Treasury and the central bank have prevented the local currency's money supply from satisfying the entire market, in an effort to prevent it from becoming inflationary. However, this has created a liquidity crunch that is crippling the market and forcing foreign currency holders to maintain their positions.
Mnangagwa stated that the government's intention is to have a deliberate program to bolster the local currency, the ZiG, and those measures to this effect will be featured in the 2024 National Budget review scheduled for this week.
