Tinotenda Hove- Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu has sought to reassure foreign-currency holders that they will not be forced to surrender their dollars when Zimbabwe eventually transitions to a mono-currency system, but his own disclosure that the country remains below the regional reserve benchmark highlights the economic challenges standing in the way.

Mushayavanhu said the return to a single currency would only be considered after eight conditions had been met, including low and stable inflation, adequate foreign-currency reserves, exchange-rate stability, strong demand for the Zimbabwe Gold (ZiG), financial-sector stability, policy cohesion, a secure national payment system and an efficient foreign-currency market.

Speaking in Harare this week at the signing of a US$30 million facility between CABS and British International Investment, Mushayavanhu stressed that the transition would not be imposed.

“We have come up with eight conditions. We will not even attempt to talk about mono-currency until and unless those conditions are addressed,” he said.

However, the governor’s remarks also exposed the distance Zimbabwe still has to travel before the proposed transition can become a reality.

One of the clearest weaknesses is the country’s foreign-exchange reserve position.

Mushayavanhu said the RBZ had increased reserves from less than one week’s import cover two-and-a-half years ago to two months currently.

“Two years ago, this country had less than one week’s worth of import cover in foreign reserves at the Reserve Bank. As we speak right now, as of yesterday, we were at two months’ import cover,” he said.

The figure nevertheless remains below the SADC benchmark of three to six months of import cover.

This leaves Zimbabwe having to build its reserves further before satisfying one of the conditions it has itself identified for a return to mono-currency.

Mushayavanhu also sought to calm concerns that the proposed transition could result in people being compelled to convert their foreign currency into ZiG.

“I want to assure you that, number one, the return to mono-currency is going to be market-driven,” he said.

He said the ultimate objective was to establish a financial environment where people would be comfortable accepting either currency.

“By market-driven, I am saying that we want to get to a point where, when someone is paying for an obligation, the recipient of that money should be able to say, ‘Pay me whatever you have. If you have dollars, pay me in dollars.

If you have ZiG, pay me in ZiG’. And we are slowly getting there.”
According to Mushayavanhu, signs of that flexibility are already emerging in the retail sector, where customers are increasingly being asked which currency they want to use rather than having to negotiate with retailers over payment in ZiG.

But the proposed transition remains heavily dependent on whether the RBZ can achieve sustained stability across the wider economy.

The requirement for strong demand for ZiG is particularly significant because confidence in a local currency is central to the success of any move away from widespread use of foreign currency.

The RBZ also wants inflation to remain low and stable, the exchange rate to become more predictable and the financial sector to remain stable before mono-currency is even considered.

For now, Mushayavanhu’s own figures show that Zimbabwe has made progress in rebuilding reserves but remains below the regional benchmark.

The two-month import cover therefore provides both a measure of improvement and a reminder of the gap that remains before the country can claim to have met all the conditions for a return to a single currency.