Is dollarisation the panacea for Zimbabwe's economic challenges?

Abstract

This paper is a bird s eye view on the pros and cons of dollarisation on the Zimbabwean economy. On January 29, 2009 Zimbabwe fully legalised the use of foreign currency for domestic transactions releasing the economy from the grip of the Reserve Bank which had printed enough money to drive the country into hyperinflation. At the height of hyperinflation in November 2008 prices were doubling every 24.7 hours or an equivalent daily inflation of 98%. Dollarisation which was underlined by political accommodation had the immediate effect of stopping hyperinflation and the country entered deflation leading to the decline of consumer prices. However, a major problem the country is facing despite dollarisation is that of being locked in a liquidity crunch making it difficult to justify the country's economic asset pricing. Moreover, the benefits of dollarisation remain invisible to the majority since 80% of the people are unemployed. Despite these challenges the stabilisation of the political system through the formation of the coalition government and the commencement of sound economic policies meant that Zimbabwe has begun a crucial reconstruction phase.