Anecdotal evidence suggests that the Zimbabwean economy is dollarising itself again with more and more transactions being conducted in USD cash as opposed to ZWL. The move is led by nervy members of the public and a neglected but dominant informal sector that powers most of the economy. The Confederation of Zimbabwe Industries (CZI) is unhappy with this development and has implored the government to intervene and stop the trend.

They argue that full dollarisation make would make the local sectors of the economy uncompetitive compared to regional peers that are located in countries that employ softer currencies like the South African Rand or the Zambian Kwacha. While dollarisation might seem like a good thing to members of the public it comes at a steep cost. It will mean that goods made in Zimbabwe are expensive and resulting in reduced demand for Zimbabwean goods abroad. It would also mean that goods imported from countries such as South Africa and Zambia would now be cheaper than locally made goods.

We are already seeing this in practice in a lot of shops:

2 litres of Pure Drop and Zimgold is going for about US$4.10-U$4.50 in a lot of shops. In comparison, some South African brands of cooking oil are going for as little as US$3.90 and flying off the shelves of tuckshops
MAQ washing powder is now selling for as little as US$3.20 per 2kg while Boom, which is locally made by Trade Kings, continues to sell for around US$3.50-US$4.00.

These are just a few examples of a concerning trend. It’s been estimated that the percentage of retail shelf space occupied by locally produced goods has increased to 80% this year from 55% last year. That positive change will not survive dollarisation as it will become more lucrative for local businesses to just import or smuggle goods from South Africa, Botswana and Zambia.

The government has itself to blame

Much of Zimbabwe’s currency crisis is stemming from a very simple issue, the government of Zimbabwe loves to print and spend money. Everyone knows that printing money fuels inflation but the Zimbabwean government also wants the exchange rate between ZWL, the local currency and other currencies including the USD to remain stable despite money growth. This is an impossible feat without proper reserves and the Zimbabwean government simply does not have them.

It has instead resorted to threats and rushed laws. Over the past four years, the government has unleashed policy bombshells meant to allow them to wantonly print money while keeping the rate fixed. They started by claiming that the ZWL was backed by an Afriximbank facility. When that didn’t work they set the rate at $2.5 ZWL as to 1 USD back in February of 2019, later they fixed the rate at $25 ZWL as to 1 USD, banned the local use of USD, introduced Nostro accounts, a 4% IMT Tax, froze business accounts, issued various contradictory Statutory Instruments among many perceived slights.

The response by the public has been to shun the banking system as much as they can. Stuffing money into pillows and mattresses. People do not like paying the 2% IMT Tax or the exorbitant banking fees that banks like to levy upon members of the public. Informal businesses have also been treated like enemies by the government who often cook up new ways to tax them without providing much in terms of policy support. The result is that dollarisation has become a natural refuge for both members of the public and informal businesses seeking shelter from government overreach.