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The Pitfalls of Dollarisation

THERE is no way that dollarisation of the Zimbabwean economy can work unless the government has found some concrete way to balance the budget so that we do not suffer from a deficit.


Government expenditure has increased whilst the business sector, mining and agriculture has shrunk so the tax base has diminished.

The proposal that the Reserve Bank issue coupons equal to US dollars to make up for the fact that there are insufficient US dollars in the economy is not practical in such circumstances.

The result would be the same as the printing of money in Zimbabwean dollars. The coupons will be worthless unless the Reserve Bank has some means of underwriting the value by holding actual US dollars, gold or something that would convert into the real thing.

If the Reserve Bank had some backing for the Zimbabwe dollar it would have some value but it does not. Calling something by another name does not make it any better and it will suffer the same fate.

The proposals would also mean that all businesses would be able to trade in foreign currency and  everyone would be able to have a foreign currency account with any of the banks without reference or licensing by the Reserve Bank or anyone else.

Without these freedoms the proposals are doomed. It is not possible to introduce hard currency payments for tax without giving carte blanche for everyone to use hard currency freely.

The present government’s policies and its restrictive practices will preclude this system from working.

The government has not yet appreciated that they could not get balance of payments support from anywhere with their present policies which have led to the total collapse of the economy.

No country in their right mind could justify funding the Zimbabwean economy with no hope of ever being repaid.

W Peters,
UK.

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