The Bank of Zambia (BoZ) has said it will take a cautious approach to banning the use of the U.S. dollar in local transactions to avoid distortions in the economy.
This comes a few days after IMF Resident Representative, Eric Lautier, questioned the effectiveness of the deal saying it might defeat its purpose.
“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 1 week ago.
Businesses have also reportedly pushed back on the proposed regulations calling them ‘punitive’ and warning that they may actually fuel price growth. For instance, The Zambia Association of Manufacturers said the move will be counter-productive in the current economic environment.
However, according to the Bank of Zambia (BoZ) Governor, Denny Kalyalya, it is unfortunate that the central bank comes under attack from some sections of society, noting that the bank only wants to enforce existing laws which mandate that the local currency, the Kwacha, is the only legal tender for conducting domestic transactions in Zambia.
“We have noted a frenzy of people going out to the media saying we are discouraging the use of the dollar. That is not the case; we just want to reinforce the law,” said the Governor during a mid-year budget review. meeting.
Kalyalya said the central bank is collecting views from stakeholders who are for or against the move, saying it wants to have a broader perspective on the issue.
According to Kalyalya, businesses should adjust to the decision that will come out of the consultations regardless of how much it will affect them. The bank commenced consultations on the draft currency regulations, which include a ban on charging foreign currency in local transactions – punishable with 10-year jail terms.
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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Despite the criticism, other local players have hailed the proposed regulations.
The Center for Trade Policy and Development, a local trade and development think tank, said the increasing use of the U.S. dollar in local transactions rendered the monetary policy rate instrument ineffective in curtailing the depreciation of the local currency, according to local media.
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