Regulation
“Forced de-dollarization measures risk proving ineffective,” says IMF official in Zambia – BitKE
Zambia’s proposed ban on charging foreign currency in local transactions, punishable by up to 10 years in prison, could defeat its purpose, according to the International Monetary Fund (IMF).
In June 2024, the Bank of Zambia (which is the Central Bank of Zambia) has unveiled plans to curb growing dollarization in the economy which he says weakens its tools to fight inflation.
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According to a recent local report, companies have already pushed back against the proposed regulations, calling them “punitive” and warning that they could actually fuel price increases.
In an interview with Bloomberg, IMF Resident Representative Eric Lautier said that for such measures to be effective, macroeconomic stability would generally be needed, including low and stable inflation and limited external pressures.
“Forced de-dollarization measures risk proving ineffective and could even be counterproductive,” unless they are accompanied by a strong macroeconomic stabilization plan, and depending on the specific conditions of the country and the modalities of implementation, Lautier said.
“We are evaluating these possibilities.”
Zambia’s annual inflation rose to a 29-month high of 15.2% in June 2024, on the back of its worst drought in decades. The nation is also emerging from a painful debt restructuring process and its currency has been volatile.
The draft regulations are among several far-reaching reforms aimed at achieving macroeconomic stability, with the bank continuing consultations to finalize them. While the law designates the Kwacha as Zambia’s sole legal tender, businesses such as mall landlords, car dealers and hotels often set prices in dollars.
According to the IMF, Zambia, which has a $1.7 billion economic program with the Fund and is considering asking for further assistance, did not consult it about the plans before announcing them.
The IMF has just begun evaluating the initiative and has consulted with authorities, including the Bank of Zambia, on the details to assess its merits, Lautier said.
In Africa, governments are stepping up efforts to protect their economies from the effects of the dollar.
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Aside from Zambia, the last few weeks have seen Uganda, TanzaniaAND Zimbabwe announce de-dollarization measures.
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