Zambia’s proposed ban on charging foreign currency in local transactions — punishable with 10-year jail terms — might defeat its own purpose, according to the International Monetary Fund (IMF).
In June 2024, the Bank of Zambia (which is the Central Bank of Zambia) unveiled plans to curb increasing dollarization in the economy that it said blunts its tools to fight inflation.
REGULATION | Bank of Zambia Plans to Criminalize Foreign Currency Use Amid Kwacha Rally – https://t.co/XCx2LnjDEV https://t.co/MhCXCDHMVx
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According to a recent local report, businesses have already pushed back on the proposed regulations calling them ‘punitive’ and warning that they may actually fuel price growth.
Speaking to Bloomberg, the IMF Resident Representative, Eric Lautier, indicated that macro-economic stability, including low and stable inflation and limited external pressures, would generally be required for such measures to be effective.
“Forced de-dollarization measures are likely to prove in-effective and could even be counterproductive,” unless accompanied by a strong macro-economic stabilization plan and, depending on country specific conditions and implementation modalities, Lautier said.
“We are in the process of evaluating those.”
Zambia’s annual inflation reportedly rose to a 29-month high of 15.2% in June 2024 in the wake of the worst drought in decades. The nation is also emerging from a painful debt restructuring process, and its currency has been volatile.
The draft regulations are among several extensive reforms aimed at achieving macro-economic stability, with the bank continuing consultations to finalize them. While the law designates the Kwacha as Zambia’s only legal tender, businesses such as mall landlords, car dealers, and hotels frequently set prices in dollars.
According to IMF, Zambia which has a $1.7 billion economic program with the IMF and is considering asking it for more help, didn’t consul it on the plans before announcing them.
The IMF has only just started assessing the initiative and has been consulting with the authorities including the Bank of Zambia about the details to evaluate its merits, Lautier said.
IMF Managing Director Kristalina Georgieva meeting with Zambian President Hakainde Hichilema in Lusaka.Africa is witnessing more efforts by governments to protect their economies from the effects of the Dollar.
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Other than Zambia, recent weeks have seen Uganda, Tanzania, and Zimbabwe announce de-dollarization measures.
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