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Zimbabwe Extends US Dollar Use By Five Years to 2030

(Bloomberg) -- Zimbabwean President Emmerson Mnangagwa extended the use of US dollars for transactions in the economy by another five years, a move aimed at allaying market concerns about a possible policy change in the nation’s multi-currency regime.

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The dollar was due to be outlawed as legal tender at the end of 2025. That had left lenders reluctant to offer loans to individuals and businesses past the deadline and curtailed funding for long-term investments.

The extension, published in a government gazette on Friday, is a response to investor appeals, according to Persistence Gwanyanya, a member of the central bank’s monetary policy committee.

“We have just answered the market’s call,” Gwanyanya said by phone. “The rationale is to nurture confidence while supporting increased Zimbabwe dollar usage, without decreeing.”

Read More: Rapid Dollarization to Stymie Zimbabwe’s Plan to Drop Greenback

The greenback remains the dominant currency in the southern African nation as the value of the Zimbabwe dollar, which was reintroduced in 2019, is eroded by high inflation. Imara Asset Management, the largest independently-owned asset manager in the country, which oversees more than $100 million, said last week dollarization of the economy is accelerating, making it difficult for the government to drop the greenback.

Data from the national statistics agency showed 80% of all economic transactions in the country are now done in the American currency, up from 75% earlier this year.

Friday’s decision is “a pragmatic approach” by the authorities, according to Shelton Sibanda, the chief investment officer at Imara.

“It’s good that de-dollarization has not been forced,” he said by phone. The next few years will be crucial in helping sustain and protect the Zimbabwe dollar, with one of the “key attributes being to ensure it becomes a store of value,” Sibanda said.

Zimbabwe abandoned its own currency in 2009 when hyperinflation set in. When the local unit was reintroduced in June 2019 the use of other currencies including the greenback was banned, but that policy was reversed in April 2020 following the onset of the coronavirus pandemic.

Mnangagwa has previously vowed to defend the local currency which he claimed was under attack from his political opponents.

(Updates with comments by MPC member, details throughout)

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