Shame Makoshori, Senior Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) could be losing about US$90 million per annum in profits after the country dollarised its economy four years ago, a new research indicated this week.
Dollarisation occurs when a country adopts another country's currency.
In 2009, Zimbabwe moved to a multicurrency monetary regime as part of measures aimed at extinguishing a decade-long economic crisis characterised by runaway inflation, capital and skills flight and a defenceless local unit.
The United States dollar, the South African Rand and the British Pound are some of the major currencies transacting in Zimbabwe since 2009.
Multicurrencies have helped the country restore monetary stability and broadened financial integration, especially with neighbouring South Africa.
There has been intensive debate over dollarisation in Zimbabwe.
Those against the system have demanded the immediate return of the Zimbabwe dollar, arguing that its reintroduction will solve an ongoing liquidity crunch in industries.
However, economists at the Labour & Economic Development Research Institute Zimbabwe (LEDRIZ) have said the RBZ has been losing the equivalence of about 1,5 percent of the country's Gross Domestic Product (GDP) in note printing and coin minting profits through dollarisation.
"There is a loss of seigniorage in the dollarised nation," LEDRIZ said in the report entitled ‘Beyond the Enclave'.
"Seigniorage is the profit that accrues to the central bank from printing notes and minting coins. The profit normally amounts to about one to 1,5 percent of GDP," said LEDRIZ.
The country's GDP is currently estimated at US$6 million and 1,5 percent of GDP translates to about US$90 million per annum.
Cumulatively, the central bank could lose about US$360 million by the end of 2012, using LEDRIZ's computations. Zimbabwe's central bank is undercapitalised.
Its lender of last resort function has been affected by limited financial resources.
Two week ago, the central bank said it had sealed a US$8 million financial deal with pan African financial institution, African Export and Import Bank, as part of measures to restore its capacity to play the lender of last resort role.
LEDRIZ said dollarisation exposed the economy to external shocks.
"There is a loss of an independent monetary and exchange rate policy, as the central bank's ability to control its money supply, interest rates and exchange rates to influence the domestic economy is undermined," said the report.
"This leaves the dollarised economy vulnerable to external shock," LEDRIZ added.
Last year, the central bank said the country should consider adopting a gold-backed Zimbabwe dollar warning that the US greenback's days as the world's reserve currency were coming to an end.
"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency which will not only be stable but internationally acceptable," central bank Governor, Gideon Gono said.
"We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way. The events of the 2008 global financial crisis demand a new approach to self reliance and a stable mineral-backed currency and to me, gold has proven over the years that it is a stable and most desired precious metal. Zimbabwe is sitting on trillions worth of gold-reserves and it is time we start thinking outside the box, for our survival and prosperity," Gono added.
Gono's proposals have enc-ountered stiff resistance from some industries that have argued that an early return of the local currency could trigger a fresh wave of hyperinflation and economic decline.
Other countries that have adopted dollarisation include Argentina, Mexico, Bolivia, Peru, Georgia, Russia, Ukraine, Turkey, Romania, Mozambique and Zambia.
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