Zimbabwe’s plan to abandon the US dollar as its main currency faces a significant hurdle: a lack of foreign currency reserves. The government revealed it needs at least $2.5 billion to fully transition to its new local currency, the Zimbabwe Gold (ZiG), dampening hopes for a swift de-dollarization.
President Emmerson Mnangagwa had previously hinted at phasing out the US dollar if ZiG gained stability and value. However, Deputy Finance Minister David Mnangagwa’s recent statement highlights the financial constraints.
Zimbabwe introduced ZiG in April, backed by commodities and foreign exchange, with the goal of eventually replacing the multicurrency system currently in use. Despite this, the US dollar remains dominant, with many businesses still using it for transactions and reporting.
“Currently, there’s roughly $2.3 billion circulating, with $2 billion being US dollars and only $300 million in ZiG,” Mnangagwa said. “To fully de-dollarize, we’d need at least $2.5 billion in reserves, either in gold or cash, to cover all circulating money.”
The initial target for complete de-dollarization was 2025. However, this has been pushed back to 2030 due to liquidity problems stemming from the de-dollarization process itself. The government’s efforts to control ZiG’s supply to curb inflation have backfired, leading to a cash shortage and discouraging people from letting go of their US dollars.
“We need to ensure the existing $2 billion in circulation is backed by reserves,” Mnangagwa explained. “This will absorb the US dollars and allow ZiG to function interchangeably with them.”
Official figures show ZiG currently accounts for less than a fifth of all transactions. Mnangagwa emphasized the need for substantial reserves to absorb US dollars and increase ZiG circulation without causing inflation.
The government intends to unveil additional measures to strengthen ZiG in the forthcoming National Budget review. “Expect concrete actions in the upcoming review to demonstrate our commitment,” Mnangagwa concluded.
