Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya has reiterated that Zimbabwe will not fully dollarise, saying the country has limited foreign currency.
Mangudya revealed that 70 percent of deposits in the banking sector are in forex and also conceded that there is a huge appetite for foreign currency but said the economy cannot sustain full dollarisation. He said:
70 percent of deposits in the banking sector are in foreign currency and 30 percent in local currency. People in Zimbabwe who have Zim dollars always go to the parallel market (to buy foreign currency).
But we can’t dollarise, we cannot be competitive in a dollarised environment, we need to look at the national interests; this economy cannot sustain dollarisation, we have limited foreign currency; we leave from hand to mouth (in terms of forex).
We cannot sustain dollarisation, the rate at which US dollars go out is faster than the rate at which US dollars come in. If we dollarise aggregate demand will fall and companies will scale down and jobs will be lost.
Mangudya said dollarisation will negatively impact growth. He said authorities sympathised with what people in Zimbabwe have gone through, especially the hyperinflationary periods that wiped out savings before dollarisation in 2009.
However, former Monetary Policy Committee (MPC) member Eddie Cross differed, arguing the prevailing exchange rate volatility was a result of “money printing” by the central bank, a claim Mangudya denied. Said Cross:
The Reserve Bank is printing money. They are printing money to buy gold and to buy hard currency for a variety of reasons, including to service external obligations.
The Reserve Bank converts about 25 percent of exports earnings (local currency paid to exporters); they are earning about US$500 million a month now and 25 percent of that (surrendered) is US$125 million a month.