The researcher will seek to analyse and assess the impact of the multicurrency regime dollarization adoption in february 2009 on the liquidity crisis facing the zimbabwean commercial banks. A descriptive research design was used in which data was collected from a sample of 183 respondents using questionnaires and interviews. The presentation summaries the hyperinflation in zimbabwe, its causes, and possible remedies. Effect of official dollarization on a small open economy. For instance, zimbabwe saw the hyperinflation reduce from 0 % to less than 10% after dollarization. Financial dollarization can take several forms, including foreign borrowing domestic banks or local. An investigation into dollarisation and its impact on. It shows how dollarization has allowed zimbabwe to quash hyperinflation, restore stability, increase budgetary discipline, and reestablish monetary credibility. Zimbabwe 199020 john davison gondwe nhavira, university of zimbabwe, zimbabwe. Introduction one of the most notable effects of the recent financial sector liberalization in tanzania is the increased use of foreign currency notably the u. Arrangements with the zimbabwe dollar as sole legal tender could be unstable in the absence of a sufficiently long track record of sound policies. Doc effects of dollarization on zimbabwe business growth. Investigating the impact of dollarization on economic growth.
Page 3 buying motivation page 3 dollarization and selling pages 4, 5 reduction to the absurd page 4 dollarization and marketing page 6 dollarization techniques pages 7, 8 three steps in one meeting page 7 customer buy in is a must page 8 the dollarization doctrine page 8 by jeffrey j. Time for shifting from neoliberal paradigm to people centered development alternatives rangarirai machemedze zimbabwe today faces political and economic crises as a result of multifaceted chain of events ignited by the early 1990s structural adjustment programmes that were forced on the country by. This research found out that the current multicurrency regime has proved effective in that it has. An investigation into dollarisation and its impact on tourism.
Agriculture and mining largely contribute to exports. This paper examines the economic impact of the inception of the full dollarization 1 in zimbabwes economy after the effects of hyperinflation and an unprecedented depreciation of an exchange rate. Official dollarization the main reason for dollarization is because of greater stability in the value of the foreign currency over domestic currency. This paper examines the impact of dollarization on the performance of the zimbabwean economy from 2003 to 2014 using an interrupted timeseries analysis. The effects of dollarization may change from time to time, as has been the case for zimbabwe where inflation was arrested but policies need to be put in place to promote economic growth. The original presentation has a lot of animations which i dont t slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. The dynamics of devolution in zimbabwe a briefing paper on local democracy.
Evidently, balassasamuelson effects would continue to operate and to operate strongly even in a country that had adopted the currency of another country, an effect that was also visible in the currency board cases. Currency boards that lock local curren cies to the dollar or the euro also exist in hong kong, estonia, bulgaria, and lithuania. The negative effects of dollarization on the zimbabwean economy were mostly the reduction of the competitiveness of local products on the international market and the liquidity shortage that. Social unrest in the capital, quito, highlights discontent with the governments currency policies. However, hyperinflation4 eroded the value of the zimbabwe currency. Examining the effects of dollarization on ecuador coha. Governments which end up dollarising only do so as a last resort. Pdf lessons from zimbabwes hyperinflation and dollarization. Dollarisation in zimbabwe and the death of an industry. Dollarization and its impacts dollarization the departure from holding of portfolio in domestic currency to foreign currency. S dollar as a way of holding wealth and a means of transaction for goods and services by the domestic. The effects of dollarization on human resources in the. An interrupted timeseries analysis raphael tabani mpofu abstract this paper examines the impact of dollarization on the performance of the zimbabwean economy from 2003 to 2014 using an interrupted timeseries analysis. Quispeagnoli, 2002 that is the unofficial dollarization, semi official dollarization and official dollarization.
Transaction dollarization or currency substitution, which is the use of the dollar as a means of payment in domestic transactions financial dollarization, the substitution of local currency. The downside of dollarization is that the country gives up its right to influence its own monetary policy by adjusting the money supply. Implications for the partners are as much political as economic. Investigating the impact of dollarization on economic. The small african nation of zimbabwe gained independence in 1980, and it was in the same year that the zimbabwean dollar replaced the rhodesian dollar at par rate as the official state currency. Other currencies in the mcr basket no longer in use. In its younger years zimbabwe was seen by many as a contender to give south africa a tough fight for the top spot in. While dollarization has helped to stop inflation and stabilize economies in the shortrun, significant longterm effects can serve to negate out the positive, shorttermed effects. The first section of this paper will examine the pros and cons of dollarization from the point of view of the dollarizing country. This paper examines the economic impact of the inception of the full dollarization 1 in zimbabwe s economy after the effects of hyperinflation and an unprecedented depreciation of an exchange rate.
More specifically, we investigate how dollarization effects inflation, gdp, inflation uncertainty and moneyprice relationship in ecuador. Excessive dollarization zimbabwe increasingly relying on the us dollar. The sample is made up of sixty two listed companies that make up the zimbabwe stock exchange industrial index, which is used as the benchmark index. Causes and effects of dollarisation in zimbabwe the major causes of hyperinflation that lead zimbabwe to dollarise its economy include money printing seigniorage, foreign currency shortages with their resultant black market premium, demand pullinflation due to disrupted production. Chidakwa management college of southern africa mancosa, south africa this study examined the effects of dollarization on business in zimbabwe focusing on economic indicators such as inflation rate, gdp, employment and ease of doing. During the inflation period of 1998 2008, domestic output declined so imports became more. Zimbabwes hyperinflationary past and the stabilization measures taken by the government are outlined, and the consequences defined. The change to dollarization has impacted many aspects of ecuadors economy, specifically the.
Rapid dollarization in the economy was accelerated by the exogenous shock caused. Dollarization has been put forward by some as the possible solution to institutional weaknesses in the developing world. Dollarization in zimbabwe initially resulted in a period of. Transaction dollarization or currency substitution, which is the use of the dollar as a means of payment in domestic transactions financial dollarization, the. Page 3 buying motivation page 3 dollarization and selling pages 4, 5 reduction to the absurd page 4 dollarization and marketing page 6 dollarization techniques pages 7, 8 three steps in one meeting page 7 customer buyin is a must page 8 the dollarization doctrine page 8 by jeffrey j. In its younger years zimbabwe was seen by many as a contender to give south africa a tough fight for the top spot in africa. If its true that bad money can drive out good, then the reverse can happen too.
It also uses the south african rand, the euro, and the chinese yuan, alongside the dollar. Pdf this paper examines the economic impact of the inception of the full dollarization 1 in zimbabwe s economy after the effects of hyperinflation and an. Zimbabwe to succeed the current multicurrency system, which the authorities consider a temporary arrangement. In the last decade, good governance and sensible policymaking have been in short supply in harare. If a real depreciation is called for, it will occur under dollarization via a gradual. About one year after dollarization they wrote, the most beneficiated sector from the dollarization process has been the financial system proceso, 2002. Zimbabwe has the second biggest informal economy as a share of its economy which has a score of 60. The downside of dollarization is that the country gives up its right to influence its own monetary policy by adjusting the money.
Zimbabwe dollarized in 2009 by legalising the use of a basket of currencies, of which the united states dollar us dollar has emerged as the principal currency in use. Witness zimbabwe, which as recently as july 2008 was experiencing inflation at an annual rate of 231 million percent. In zimbabwe all the three types of dollarization were. Currency substitution, dollarisation and possibility of dedollarisation in zimbabwe 1wellington garikai bonga, 2netsai lizzy dhoro abstract. Empirical evidence and crosscountry experience 3 1. In zimbabwes case, dollarization was the official replacement of the zimbabwean dollar with the u. The impact of dollarization on the zimbabwe economy essay.
Evidence from zimbabwe stein masunda department of agriculture economics and development, midlands state university, p. The impacts of dollarization on zimbabwes tourism industry. Actionaid published by actionaid denmark october 2014 about the research for this paper the research on which this briefing is based was commissioned by actionaid international zimbabwe. Usd is a global reserve currencyattractive to all manner of agents zimbabwe almost an atm of the region need to restore the multicurrency system.
This case study of zimbabwes hyperinflation and subsequent dollarization provides lessons for other developing economies about conducting monetary policy and the impact of full dollarization. Dollarisation can be a path to economic stability and growth if managed properly. Currency substitution or dollarization is the use of a foreign currency in parallel to or instead of the domestic currency currency substitution can be full or partial. The research was conducted to assess the possibility of reintroducing the zimbabwean dollar. Increase development assistance to zimbabwe, including to the government, but with strict earmarking and monitoring revise the present zimbabwe policy according to contextual changes, and include devolution as a strategic focus area, take lead in the donor community to put pressure on zimbabwe to implement its new constitution.
The economy of zimbabwe is mainly made of tertiary industry which makes up to 60% of the total gdp as of 2017. This has had a negative impact on all levels of society. Further, dollarization imposes stronger financial constraint on the government by eliminating financing of the deficit by issuing money, which has the potential of increasing aggregate demand and thereafter inflation. Dollarization continues the process of foreign indebtedness and colonial dependency, with the longknown outcomes of poverty and social inequality, assert activists in ecuador. This paper used both explanatory and empirical approach. Empirical studies on the effects of moving from one monetary regime to another, or on the performance of similar countries with different regimes, can provide evidence on this issue. Mar 22, 2011 linking zimbabwe s business cycle, even in the period of global recession, is a reality far rosier than the ignoble isolation of the zimbabwe dollar era. Through an examination of the impacts of dollarization in the 21 st century and the economic principles behind it, this article argues that both the positive and negative impacts of dollarization are perhaps being overstated, and that a dedollarization process would provide more negative effects than positive outcomes for ecuador. Linking zimbabwes business cycle, even in the period of global recession, is a reality far rosier than the ignoble isolation of the zimbabwe dollar era. Advantages and disadvantages of dollarization by kyial. The country first breached the benchmark for hyperinflation in march 2007 when it rose above the 50% threshold brulliard, 2008.
Dollarization occurs when a country uses us dollar or other currency instead of or along with local currency. Dollarization is a situation where a country, either officially or unofficially, uses a different countrys currency as legal tender for conducting transactions. In addition to these general benefits, however, there will also be more specific effects some positive, some negative for each side. The use of the us dollar in zimbabwe has resulted in high commodity prices because the government restricted the number of businesses allowed to accept foreign currency as payment. Analysts say zimbabwe reached its rock bottom in the 10 years but due to the negative effects of the us dollar the economy is expected to go down again and. This paper investigates the effects of dollarization on the macroeconomic performance of a small open economy, ecuador, using a time series perspective. Some small economies, for whom it is impractical to. Full dollarization is the most direct, irreversible, and credible way of bringing about tighter trade and financial integration bogetic 2000. The focus is on identifying the effects of the move to dollarization from the previous monetary regime. As chang and velasco 2000 and roubini 2001 argue, however, dollarization does not mean that increased debtcarrying costs and balance sheet effects would not occur in response to external shocks.
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