RBZ takes bold step to restore currency stability

KUDOS are due to the Reserve Bank of Zimbabwe and the Government for taking a bold and long-overdue step — one that many of their predecessors understood was necessary but never acted on. For years, it has been widely recognised that stabilising the local currency would require decisive measures to address the circulation of paper foreign currency within the domestic market. However, despite this understanding, previous administrations lacked the will to confront the issue directly.

The latest proposals, particularly the planned removal of paper foreign currency from local transactions, represent a correction that has been delayed for far too long. Crucially, this move does not signal the end of the multicurrency system. Foreign currency will still be in use, but its role is being properly defined — as a store of value rather than a parallel means of everyday exchange.

The objective behind these measures is clear. Zimbabwe needs to channel all foreign currency inflows into the formal market, where they can be tracked, taxed and used to support national development. While allowing goods and services to be priced in different currencies offers flexibility, the widespread use of physical foreign notes in daily transactions has undermined monetary policy, encouraged arbitrage, and weakened confidence in the local currency.

For these reforms to succeed, the RBZ must go further by ensuring full convertibility of the local currency. Commercial banks, rather than the central bank, should manage foreign currency transactions at a fully market-determined exchange rate. It is essential that both businesses and individuals can access foreign currency when required, without relying on RBZ allocations. This approach will help eliminate distortions, rebuild trust and ensure that essential goods and services — including fuel and passports — can be paid for in any currency at the prevailing exchange rate.

The use of foreign currency cards should be limited strictly to the local market, with ATMs dispensing only ZiG. In simple terms, all local withdrawals should be made in ZiG in order to reinforce its role as the primary currency within the economy.

Foreign currency, meanwhile, should remain a store of value. This means conversions from ZiG to USD must take place daily at the prevailing exchange rate, with funds only being converted back into ZiG when necessary. For such a system to work, the RBZ must guarantee that banks will always have access to sufficient foreign currency to back converted ZiG balances. Without this guarantee, and without consistent implementation, the system risks failure and the country could once again face shortages similar to those experienced in the past.

To ensure that all foreign currency entering the country is properly captured, more dealers should be licensed, especially at ports of entry and in areas receiving diaspora remittances. Strengthening these channels will help formalise the flow of foreign currency and limit the influence of informal market actors who have been absorbing readily available USD.

Another area that requires urgent attention is the hospitality sector, particularly hotels in remote areas and the growing Air BnB market. A significant number of bookings are made and paid for outside the country, meaning that the funds do not enter Zimbabwe’s financial system. Government must tighten controls by ensuring that all visitors provide proof of accommodation upon entry, with random checks carried out to verify compliance. In extreme cases, it may even be necessary to deploy officers at registered lodges, hotels and Air BnBs to ensure accurate reporting of occupancy levels. Such measures would ensure that Zimbabwe receives its fair share of tourism-related foreign currency earnings, which are vital for national development.

The RBZ’s latest proposals show a willingness to address long-standing structural weaknesses in the monetary system. If these reforms are backed by full convertibility, stricter formalisation of foreign currency inflows and tighter oversight of tourism revenues, they could mark a turning point towards genuine currency stability.

These steps align with the broader aspirations of Vision 2030 and are consistent with the legislative intent behind Bill No. 3, which forms part of a wider reform agenda aimed at strengthening governance and stabilising the economy. — O Gutu