VICTORIA FALS, Zimbabwe – Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya addressed delegates at the Chamber of Mines of Zimbabwe (CoMZ) annual conference in Victoria Falls on Wednesday, attributing the recent exchange rate volatilities to past experiences rather than basic economic issues.
Mangudya firmly ruled out dollarisation as a solution, claiming that the country lacks the capacity to implement such a system.
The southern African nation has been grappling with severe exchange rate fluctuations in recent weeks, leading to growing calls for full dollarisation.
However, Mangudya emphasized that 30% of the country’s deposits are in Zimbabwe dollars, while the remaining 70% consists of US dollars.
He argued that the movement in exchange rates is primarily driven by negative inflation expectations related to the Zimbabwe dollar.
Mangudya asserted, “There is the hysterical scenario or otherwise the once beaten, twice shy scenario, whereby people were beaten before by hyperinflation in 2008 and were beaten also in 2019 when we came up with new currency reforms. Human beings are rational.”
He further explained that due to negative past experiences, people tend to harbor doubts and choose to convert excess local currency into foreign currency on the parallel market.
In a dual currency system, the demand for foreign currency is virtually unlimited.
Mangudya emphasised that these behaviours are not a fundamental economic challenge but rather a result of historical factors.
The RBZ Governor implored Zimbabweans to have faith in the local currency and urged them to embrace it as the country’s only path to development.
He stated, “Let’s be resolute to maintain that and go forward. The only country that we have is this country. My message is that the country cannot sustain itself by using other people’s foreign currency. So, you need to embrace our own.”
Mangudya highlighted the potential difficulties faced by local companies in competing within the African Continental Free Trade Area if the country were to adopt dollarisation.
He pointed out that mining accounted for 70% of the country’s exports up until April, making it a consistently strong performer.
However, he stressed that the foreign currency generated through these exports belonged to the exporters and couldn’t be utilized to dollarise the economy.
Addressing the confusion surrounding Zimbabwe’s foreign currency reserves, Mangudya clarified that the funds in the banks did not belong to the government.
Instead, they were the property of exporters, enabling them to continue their operations.
He emphasized that the largest exporting companies in the country, such as Zimplats, Unki, and Mimosa, held significant amounts of foreign currency.
Mangudya concluded his address by reaffirming the importance of managing the country’s resources effectively, stating, “The numbers don’t lie. If you can measure it, you can manage it. Ours is 25% which is supposed to go through the rest of the economy. That’s what we use for auction, for reserves, and for paying debts. That’s what it is.”
As Zimbabwe continues to grapple with exchange rate fluctuations, Mangudya’s rejection of dollarisation and his call for trust in the local currency signal the government’s determination to maintain stability and foster economic growth.