Jan 22, 57, The chief advantage to dollarization is that rampant inflation has been dramatically stabilized. This has, in turn, stabilized the overall economy, sustained the buying power of the Zimbabwean people, and allowed the nation as a whole to experience significant economic growth. Long-term economic planning is easier to do under a stable currency, and the hope is that the dollar will attract foreign investors who were previously reluctant to invest in Zim due to its economic and monetary weaknesses. On the other hand, there is also a downside to dollarization. By scrapping its own currency, the Zim government can no longer make its own monetary decisions which Dr.
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Jan 22, 57, The chief advantage to dollarization is that rampant inflation has been dramatically stabilized. This has, in turn, stabilized the overall economy, sustained the buying power of the Zimbabwean people, and allowed the nation as a whole to experience significant economic growth. Long-term economic planning is easier to do under a stable currency, and the hope is that the dollar will attract foreign investors who were previously reluctant to invest in Zim due to its economic and monetary weaknesses.
On the other hand, there is also a downside to dollarization. By scrapping its own currency, the Zim government can no longer make its own monetary decisions which Dr.
Ngwenya, a lecturer at Solusi University describes as seigniorage. Moreover, Zimbabwe is at a competitive disadvantage to its trading partners in that, unlike neighbouring countries such as Zambia or South Africa, it cannot make its goods cheaper in the worldwide market by devaluing its currency. Dollarization is a factor of stability. Commerce and services grow rapidly in Zimbabwe, encouraged by dollarization. The monetary scheme succeeded in that the spending power of Zimbabweans is maintained and is going towards the purchase of goods and services, many of which are imported.
The control of inflation was key for these activities. He refers to inflation and the stability of foreign exchange. Dr Ngwenya recognizes that now the economy is concentrated in the services, while the contribution of national production is reduced. Dr Ngwenya recommend increasing productivity and reducing costs of production so that industrial activity does not further decay. But Dr. Warambwa, the Managing Director of Siabuwa Infrastructure Development Cooperation SIDC adds that, first, the Government must lower the public debt and maintain an economic policy of fiscal austerity and reduced taxes.
But the predicaments are not only for entrepreneurs. Dollars do not circulate easily in the marginal urban areas of the country. We could not continue ignoring washing away inefficiency. The dollar has been a stability factor. In order to visualize the relation that dollarization has had on political policy, a small exercise of imagination is required. What might have happened with the Zim dollar had rumors of political wars actually existed?
It is not difficult to imagine terrible devaluation that would have occurred and the effect that would have had on the Government. Dollarization has been, then, an economic phenomenon that has had enormous political meaning.
In fact, the decision to adopt that model was a political measurement. Some analysts also agree that dollarization has created an atmosphere of stability for the public, soothed by their purchase capacity, that neutralizes the calls to mobilization that indigenous and labor leadership often make.
In Zim the dollarization process also has meant a certain change in the behavior of the political class regarding the topic of the budget. Nevertheless, the old custom does not completely yield and the Government has had to emit bonds and to acquire external debt to fulfill certain political pressures. For Developmental practioners like us, the political dimension does not stop there.
The dollarized country, i maintain, can count on the implicit support of the U. Before dollarization, the burning of money had become the solution to the problems of budgetary deficits, to rescue or to improve banking positions or for other hardships.
Those practices had an unhappy ending with dollarization. In the last years there has been a strong increase in the internal debt approved in the budgets, although this has not happened to worry the legislative confines of the inclusive government. Economic analyst, Mr.
A peculiar phenomenon happened in March of The retailers and companies of Zim went ahead with dollarization. The industries and the businesses also adopted this measurement as protection. The dollar had seduced the owners of those businesses. Or real estate that commercialized houses in that currency.
Definitively, it was a time of instability for the productive sector. The constant complaint was that the prices of the inputs and capital assets increased daily and that the clients of the industries delayed the payment or let cancel their debts.
It was the time in which it was difficult to plan. For example, the Bata company which manufactures footwear, set margins of profit of 50 percent, because they feared to lose their investments due to constant devaluations.
The manager said that before dollarization he did not know with certainty how much he gained. From the following year, when dollarization was dictated, the sales to the external markets, have had a recovery process. The rate of unemployment also fell. The January 31, unemployment was 90 percent of the economically active population PEA. But, as of that date a decreasing tendency is registered so that by 31 of December of the the rate was set at percentages lower.
Of course, since dollarization began a sizable number of Zimbabweans have emigrated, many of them of working age; that is to say, within the PEA. I tried calling the immigration department in Harare to give me statistics but unfortunately they kept referring me from office to another. The Register of Companies does not have data but it registers the eliminated or dissolved ones.
Although some of its effects on macroeconomic variables have been successful, others have had a negative impact, for example, in the rate of unemployment. The tendency is that unemployment continues to increase, although emigration has helped to control it. We cannot successfully circumscribe the analysis only to indicators like inflation and economic growth. It is necessary to ask if the model of dollarization has contributed the growth, so that poverty is reduced and that less imbalances exist in the distribution of wealth.
And it is necessary to ask if the foundations are being laid so that dollarization is sustainable in the medium and long term. The results do not say that we are headed that way. The art of the good immediate economic handling is to be pending of the immediate and most remote evils, to try to be aware of what can happen in the immediate future immediate. At the moment, we continue with structural problems: payments of the external debt, low competitiveness, high costs of production and a productive sector that demands solutions.
These problems should be solved immediately. The subject is not only to leave dollarization. Dollarization is one of the elements. This restrictive policy, which is over and above what is prudent and beyond fiscal discipline — which is needed but never at such extreme levels — has meant the destruction of the productive apparatus of Zim. In a globalized world, it is important to gather the most important contributions of the economists of all history.
On one hand, inflation is under control, the economy is growing and it is easier to do business in the country. On the other hand, the Zimbabwean economy is becoming less goods-oriented and more service-oriented. Jobs are still scare and interest rates are still high. The government continues to heavily rely on borrowing to finance its expenditures.
Dollarization has done nothing to improve this problem but rather worsened it.
DOLLARIZATION AND ECONOMIC DEVELOPMENT IN ZIMBABWE: AN INTERRUPTED TIME-SERIES ANALYSIS
WhatsApp Independent persistent price volatility in the economy has left producers and retailers in Zimbabwe with very limited options apart from indexing their products in the US dollar or pegging their Real-Time Gross Settlement RTGS prices using the black market rates of the day. De facto dollarisation, also known as unofficial dollarisation, arises when individuals lose confidence in a domestic currency and hold foreign currency bank deposits or notes to protect against high inflation in that domestic currency as is the case in Zimbabwe at present. De facto dollarisation includes the spontaneous adoption of the dollar by producers and retailers as a means to trade or store value without government legislation or recognition. The statutory instruments mean that the RTGS dollar inclusive of bond notes and coins shall be the legal tender in Zimbabwe although the law does not prohibit the use of multi-currencies adopted in for the pricing of goods and services, recording debts, accounting and settlement of transactions locally. Local producers and retailers have predictably used this window to price their products in the US dollar rather than continue with the exchange rate madness, which calls for price adjustments whenever the RTGS weakens against the dollar. History has revealed that in most countries where official dollarisation happens, the government or its central bank gives in to popular market demands to adopt the dollar as legal tender.
Rapid dollarization in the economy was accelerated by the exogenous shock caused by the injection of cash dollars into the Zimbabwean economy, mostly from international transfers. Since the official adoption of dollarization, Zimbabwe is largely a cash-based economy, with a huge amount of U. A hands-off approach to currency management has served Zimbabwe well since , but a number of risks are beginning to emerge as the economy has slowly regenerated itself and the need for large capital injections has increased. According to the tests conducted, it was found that dollarization did introduce some macroeconomic stability in Zimbabwe although a few key macroeconomic variables showed a sustained improvement. Statistical analysis shows that increased dollarization had positively affected reversed the spiralling effects of hyperinflation that were prevalent prior to , although inflationary pressures still continued, albeit at a slower pace.