Hamandishe and colleagues from the Department of Tax Policy and Advisory Services of the Ministry of Finance, for their contribution to the identification of the topic and their desirability to be part of the economic policy framework for sustainable economic development. Before this official dollarization, however, transactions were largely conducted in foreign currencies. Given a degree of economic stability achieved since 2009, this research therefore seeks to examine whether the economy is now ready for the return of the local currency and to develop an appropriate framework for de-dollarization.
An assessment of the above indicators since 2009 shows that not enough progress has yet been made to facilitate dedollarization. Once these are addressed, a market-based approach will be adopted that includes the reintroduction of the Zimbabwe dollar alongside the US dollar.
- INTRODUCTION
- INTRODUCTION TO THE STUDY
- BACKGROUND TO THE STUDY
- PROBLEM STATEMENT
- AIM OF THE STUDY
- RESEARCH OBJECTIVES
- RESEARCH QUESTIONS
- RESEARCH PROPOSITION
- JUSTIFICATION OF RESEARCH
- SCOPE OF THE RESEARCH
- ETHICAL CONSIDERATION
- DISSERTATION STRUCTURE
The main focus of this research will be to establish whether there is evidence for the existence of a strong economy to sustain the return of the domestic currency and to recommend an optimal de-dollarization framework. The purpose of the study is to identify and assess the performance of critical preconditions for de-dollarization and develop an appropriate de-dollarization framework. Since the introduction of multiple currencies in 2009, the prerequisites for de-dollarization have been met to facilitate the return of the local currency.
The chapter concludes with a summary of central issues during the review of the literature. It will seek to justify the selection of the research philosophies, approaches, strategies and data collection method used.
- INTRODUCTION
- HISTORY OF DOLLARISATION
- CAUSES OF DOLLARISATION
- Impact of Remittances on dollarisation
- Small economies in a globalised world
- BENEFITS OF DOLLARISATION
- COSTS OF DOLLARISATION
The critical questions are that if dollarization by market forces is assumed, what is the extent of the authorities' influence in determining the de-dollarization strategy. Ize and levy Yeyati, (2003), argued that dollarization can also be a result of the openness of the economy. The main attraction of full dollarization is the elimination of the risk of a sudden, sharp devaluation of the country's exchange rate.
The extent of the effect varies depending on the level of dollarization in the economy. The non-competitiveness of domestic goods compared to foreign goods is one of the negative consequences of dollarization. This can cause a serious liquidity crunch in the economy and limit the activities of the local financial system.
Galindo and Leiderman (2005) argued that most countries after adopting dollarization found that dollarization is not a suitable monetary framework, and thus began a process of de-dollarization, which aims to reinforce the dominance of the domestic currency. The degree of difficulty of dedollarization is shown by the continuation of dollarization even after macroeconomic stability has been restored and the precedent conditions have been resolved. Credit dedollarization is facilitated through the development of the local currency capital market.
Differential exchange rates were designed to discourage public use of foreign currency. Israel and Chile have also successfully used indexation to encourage the use of local currency to hedge against inflation and exchange rate uncertainty. This was followed by a depreciation of the local currency against the US dollar, which further eroded the slowly building public confidence (Menon, 2008).
In addition, Bolivia and Peru implemented measures in the first half of the 1980s to rapidly de-dollarize the banking system by forcing the conversion of foreign currency deposits into local currency. Empirically, this hysteresis has been explained by the expected volatility of the local currency exchange rate and a perceived lack of policy credibility.
- INTRODUCTION
- RESEARCH PHILOSOPHY
- RESEARCH APPROACHES
- RESEARCH STRATEGIES
- Survey
- POPULATION
- SAMPLING METHODS
- UNIT OF DATA COLLECTION
- DATA SOURCES
- Primary Data
- Secondary Data
- QUESTIONNAIRE DESIGN
- PRE-TESTING OF THE QUESTIONNAIRE
- DATA ANALYSIS AND PRESENTATION
- RESEARCH LIMITATIONS
- CHAPTER SUMMARY
The study population includes the entire population of Zimbabwe, estimated at 13 million people (ZIMSTATS, 2013). Face-to-face interviews allowed the researcher more space to elaborate on the respondents and also allowed for other verbal and non-communicative responses to be included during the interviews. Aware of the time constraints and cost implications associated with this approach, the researcher prioritized face-to-face interviews with the top associations, and in this regard all associations were interviewed.
Face-to-face interviews were therefore conducted with no less than 60% of the responses in each category. For those respondents outside Harare, an electronic copy of the questionnaire was provided under the same conditions. This was a deliberate strategy not to limit the respondents, given the nature of the survey study.
The pilot survey was very useful in refocusing the questionnaire, adjustments of the target audiences. Taking advantage of this process, questions were revised and simplified to eliminate some of the repetition inherent. To prevent the negative consequences of such a development, the researcher took time to fully explain the essence and purpose of the research.
It describes the population being studied, the construction of the sample and the relevant target audience. The ultimate objective of this methodology puts the validity of the research study into context. Limitations of the research were discovered and these did not pose any serious threat to the conduct of the research.
INTRODUCTION
RESPONSE RATE
The broad focus of these studies placed the currency discussion in the context of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) monetary unions. This promotes faster development of the parallel market economy, which has the potential to compete with the formal economy. This coupled with the absence of the lender of last resort is a major concern for the sustainability of debtors' credit.
These were compared to survey results and could measure the success or failure of different dedollarization approaches.
COMPETENCE OF RESPONDENTS
The non-response rate of a small proportion of companies, workers and consumers, as mentioned above, did not affect the overall results of the survey. The realized 95% response rate is remarkable and therefore sufficient for drawing conclusions and making specific recommendations.
FINDINGS AND DATA ANALYSIS
- Taming Inflation
- Positive economic growth
- Fiscal discipline
- Convenience to the public
- Dollarisation Draw backs/shortcomings
- Shortage of small denominations
- Liquidity constraints
- High cost of borrowing
- Competitiveness
- Limited Policy Option
- Conditions Precedence to Dedollarisation
- Institutional reforms at the Central Bank
- High and consistent Growth in GDP
- Improvement in the current account position
- Improvement on the import cover
- Realignment of government expenditures
- Central Bank Independence
- Political stability
- Policy consistency and predictability
- External Debt Resolution
- De-dollarisation as the immediate policy objective
This resulted in the replacement of the domestic currency by the US dollar (Galindo and Leiderman, 2005). Before the introduction of the various currencies, the government ran huge budget deficits, which were financed through inflationary pressures of money. Convenience for the transaction public was also a positive benefit of dollarization identified by 85% of respondents.
While this option is feasible, it remains a challenge in view of the prevailing liquidity situation in the country. These reforms included, among others, amendments to the Reserve Bank Act, the appointment of the new RBZ Board. High and sustained economic growth was identified as an important prerequisite for the reintroduction of the Zimbabwean dollar.
Sustained economic growth is in most cases associated with the appreciation and strengthening of the domestic currency. The country's current account position has been cited as an important indicator for the return of the domestic currency and its survival. The independence of the central bank was also mentioned as a necessary condition for government interference in the operations of the Reserve Bank.
Policy consistency and predictability was also cited as essential to the reintroduction of the local currency. The preconditions identified above were prioritized as needed to facilitate the return of the Zimbabwe dollar. Any debt level that is above 60% of the country's gross domestic product is classified as unsustainable (IMF, 2013).
In this regard, respondents urged the government to lead the implementation of the ongoing debt resolution framework, which will lead to the settlement of the country's external arrears. According to the survey results, 98% of respondents agreed that the reintroduction of the Zimbabwean dollar should not be on the government's immediate policy agenda.
TIME FRAME FOR DE-DOLLARISATION
APPROACHES TO DE-DOLLARISATION
The market approach involves the introduction of local currency into dollar money, a process that can start with the introduction of other coins and denominations, escalating it to higher levels. In conclusion, the survey result supported by the literature favors the reintroduction-based approach. These countries implemented supportive policies that included the creation of markets for local currency bonds and active banking supervision to ensure that banks fully cover their foreign currency credit positions.
APPROPRIATE CURRENCY REGIME: RANKING IN ORDER OF PRIORITY
CHAPTER SUMMARY
- INTRODUCTION
- CONCLUSION
- Identification of conditions precedence to de-dollarisation
- An assessment of the performance of the conditions
- The Optimal de-dollarisation framework
- TESTING FOR THE RESEARCH PROPOSITION
- RECOMMENDATIONS
- AREAS FOR FURTHER RESEARCH
Therefore, a holistic approach to addressing these deficiencies will be central to facilitating and sustaining the return of the local currency. A market-based approach involves introducing the local currency in parallel with the US dollar. The research proposal under investigation is whether the country has achieved sufficient macroeconomic stability to warrant reintroduction of the local currency.
Based on the findings of the survey and progress from 2009 to date, the country is not yet ready for the return of the local currency. Instead, the government should deal with the conditions that precede de-dollarization to allow for the return of the local currency. The objective of such a study will therefore be to ensure that all critical conditions, including public confidence, are met for the reintroduction of the local currency.
On the empirical evidence of the intertemporal current account model of the euro area countries. What has been your experience with using the multiple currencies in the country. What do you think are the specific conditions that should precede the reintroduction of the Zimbabwe dollar.
Given the current economic performance, should reintroduction of the Zimbabwean dollar be an immediate policy objective of the government? If your answer is NO to the above, what is the appropriate time to reintroduce the Zimbabwe dollar. In your opinion, how would the reintroduction of the Zimbabwe dollar be best approached without destabilizing the macroeconomic environment.
Cover Letter to the Questionnaire
Questionnaire
