Antidote for De-dollarization: Lessons for Zimbabwe

Abstract

When Zimbabwe abandoned its currency and adopted the multiple currency exchange rate system in 2009 which was anchored on the United States dollar, there was general consensus that dollarization was the only way the country could restore macroeconomic stability and grow the economy. Despite dollarization, the country has not been spared from major current account reversals, amplified output fluctuations in crucial economic sectors and increased volatility of key relative prices in the economy. In fact, economic growth and development has been on downward trend since dollarization. There are ample studies in empirical literature that demonstrate why countries dollarize yet few studies focus on how to de-dollarize and reintroduce own currency. The aim of this research was to review empirical studies on the cost and benefits of dollarization in emerging markets such as Zimbabwe and also to provide insights on de-dollarization strategies. The paper contributes to literature on strategies that developing countries can adopt to smoothen transition from a dollarized economy towards own currency. The paper recommends that prior to de-dollarization and adoption of own currency a number of intervening strategies need to be in place and these include; implementation of policies that strengthen macroeconomic stability through fiscal surpluses, introducing prudential measures to better reflect the risks of currency mismatches; developing a securities market with longer maturities in domestic currency; financial sector development and growth of export revenue.

Keywords: Antidote, Dollarization, Multicurrency, De-dollarization, Zimbabwe