WHAT is happening in Zimbabwe right now reminds me of a game we used to play when I was younger, called musical chairs.
In musical chairs, there are fewer chairs than the number of participants. The participants have to dance whilst the DJ is playing the music.
However, when the DJ stops the music, participants immediately have to find a chair to sit on, and the person who fails to secure a chair is out of the game and the game restarts until one person eventually wins.
You can imagine how calculative participants in this game have to be. At any given point one has to enjoy the music but at the same time be close enough to a chair, not the mention to analyse the physical power of anyone who might be interested in that particular chair.
There is pandemonium in that game when the DJ hits the stop button. There is usually wrestling for chairs until one finally surrenders.
This is a very interesting but risky game, and I cannot help but equate this game with what is happening to the Zimbabwean currency situation and there is no price for guessing who the DJ is.
Dollarisation to me sounds like a dance song that Zimbabweans have been vibing to for some time and now talks of putting an end to dollarisation have brought a lot of panic and uncertainty to the market.
Introduced in 2009, the United States dollar (USD) has been the currency of choice for most individuals and corporations in Zimbabwe, including government entities and agencies, with over three-quarters of transactions concluded in the greenback.
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However, the conversation of using only the local currency has always managed to find its way into any discussion agenda.
In 2019, through S.I. 142 the multicurrency was officially banned, including the use of the greenback, only to be reversed a few months later.
However, the idea did not die, and now and then it is brought on despite empirical evidence of the challenges of de-dollarisation.
Those in favour of continued use of the greenback usually throw in terms like stability and low inflation when making arguments on why Zimbabweans need to continue on the hard currency trajectory.
They feel like they do not need to say much to convince one that continued dollarisation is the right path for Zimbabwe, except for the hyperinflationary experiences we faced when we used the local currency.
On the other hand, proposers of de-dollarisation will do all they can to convince you why Zimbabwe needs its own currency to grow. If you follow their line of argument they usually start by saying the hard currency hurts export competitiveness and the manufacturing industry suffers.
If you do not seem convinced they may go ahead to talk of central bank sovereignty, which can only be achieved if there is a local currency.
Officially, late last year through S.I. 218 of 2023 the use of the multicurrency basket was extended to the end of 2023. This extension came at a time when there was now a lot of uncertainty in the market since the initial deadline of 2025 was now fast approaching.
There were now complaints amongst economic agents that capital was no longer exchanging hands and financial institutions had stopped extending credit as they feared that the music was about to stop.
A new currency was subsequently introduced early this year, with its claim to fame being the fact that it is backed by commodities and currency.
The ZiG, which has been in circulation for over three months now has been relatively stable compared to its predecessors, but still too volatile.
Unfortunately, there is still a lot in common between the two currencies with a lack of confidence standing out amongst the similarities.
It now appears that the same situation is now back. It started off as nothing more than a political statement to end dollarisation, but it appears to be more than just talk and there is a whole de-dollarisation plan in place.
The biggest question becomes, is the country ready to make such an important decision now?
I do not think so! Although de-dollarisation might be an important step that will have to be taken, I believe it will be more of a marathon than a sprint. I am of the opinion that Zimbabwe is not yet ready to stop the music now and a few boxes should be ticked before authorities can decide to resort to a monocurrency.
To borrow McGregor’s theory, I am more of a theory Y subscriber who believes that a sustainable de-dollarisation path has to be welcomed by all economic agents as opposed to being forced on them.
Economic agents need to be consulted by the authorities and give their input, which should be respected and incorporated in crafting the solution. Surely a quick de-dollarisation exercise is not one of the options that economic agents want to explore, and I know this because of the panic that is in the market right now.
Convertibility should be attained in my opinion before we can put an end to dollarisation. I know I have talked about convertibility before and might start to sound like a broken record, but it is an important confidence builder.
Everyone with their ZiG should be able to easily convert it to any hard currency of their choice. This is an easy way to audit the reserves that back the ZiG and it will increase confidence even.
We can agree that there are currently places in Zimbabwe where the local currency is not willingly accepted and that will need to be corrected before the music stops.
The more users of the currency are incentivised and convinced to use the currency, the less it becomes difficult to dollarise. The stability of the local currency also becomes key and ensuring that the exchange rate is market-determined to avoid arbitrage.
In conclusion, I believe that ending dollarisation can never be an emotional decision, it can only stand a chance if at least the mentioned pillars are satisfied, but even so, there is no guarantee.
For a currency challenge that has plagued the country over a long time, the solution might need to be well thought out instead of something reactionary.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
