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n Journal of Strategic Studies : A Journal of the Southern Bureau of Strategic Studies Trust - Dollarisation and the way forward in Zimbabwe

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Abstract

Following period of hyperinflation, Zimbabwe adopted full dollarisation without any coins in circulation in order to stabilize the economy. The study evaluates the macroeconomic effects of full dollarisation and the possibility of dedollarisation in Zimbabwe. We concluded that dollarisation has helped to stabilise the economy but these benefits come at the expense of loosing economic and policy independence. Most conditions of dedollarisation are yet to be satisfied that include sustainable current account balance, improvement in capacity utilization, and central bank reform. However if these conditions improved the country can go for a comprehensive full dedollarisation. Meanwhile, we recommend that the country must adopt market driven dedollarisation by first introducing coins less than ZW$1 backed by gold and diamonds, exchange on one to one to US$. Coins seemed to have an economic role at the moment as they will facilitate small transactions thus making them easily acceptable by the transacting public. Moreover, coins are less likely to be abused as government only raise less seigniorage revenue from them. After consolidating gains in economic performance, then broaden the use of ZW$ together with the US$. This option is preferred ahead of randisation (simple adoption of the rand) as this will persist loss of policy independence.

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/content/joss/3/1/EJC126807
2012-01-01
2016-12-07
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