The Zambian government is working on legislation that will outlaw the use of the dollar in commerce in the country, Finance Minister Alexander Chikwanda told Anadolu Agency on Friday.
The weak kwacha, which has lost about 30 percent in value against the dollar this year, along with spiraling inflation, has made doing business more difficult, because of the lack of price stability, economist Soko Edmond explained in a note published on Nov. 1. For the past decade, consumers and businesses have been hoarding dollars as an inflation hedge, and so that they can pay for goods and services at a stable cost.
But now, Chikwanda said that the kwacha will have to be used in all business transactions taking place in Zambia.
"There is no need for traders, including retailers and suppliers, to quote their goods and services in dollars. The aim of the legislation, therefore, is not only to defend the local unit from traders who tend to ignore it in preference of the dollar, which is much stronger, but also to protect consumers from unscrupulous traders that want to make a fortune out of the weak kwacha," the minister said.
The legislation is due to come force before the end of the year, the minister said.
"The use of the dollar in business transactions is tantamount to trying to tie Zambian economic activities to another monetary authority. If this is allowed, we better begin to think of doing away with the functions of the central bank," Chikwanda said.
"The consequence of subjection to foreign monetary policies is damage to the economy. There is no need for traders to use dollars in Zambia unless there is a compelling reason to do so. Otherwise, if all business transactions are made in dollars, the kwacha will be rendered useless," the minister said.
"It is, therefore, government’s responsibility to protect the country’s currency from being manipulated by unscrupulous businessman bent on using foreign currencies," he added.
Zambian economist Oliver Saasa told Open Zambia on Dec. 1 that banning the use of the dollar would allow the central bank better control of the money supply. As a result, stabilising prices quoted in kwacha would become more effective.
President Edgar Lungu has directed the Ministry of Finance to ensure enhanced monitoring of "dollarization", [the effective use of the dollar replacing the local currency] and take punitive measures against non-compliance. According to Lungu, the absence of the legislation which prohibited the use of the dollar left traders free to determine their prices in the foreign currency.
The bill will recognize the kwacha as legal tender in Zambia, and will prohibit the use of dollars in product pricing or in demands for payment of services. This is not the first time the Zambian government will put in place such monetary policy. In 2012, the Statutory Instrument No. 33 of 2012 was passed which had the same purpose. It was, however, revoked in 2014 after popular protest.
Situmbeko Musokotwane -- a private economic consultant and Zambia's finance minister between 2008 and 2011 -- told Anadolu Agency on Monday that the plan to restrict the use of the dollar is a good one.
"We have seen traders determining prices in the shadow of the dollar, and that pushes up prices," he added, "so it makes sense that there has been a call for this legislation for more than 30 years."
"We welcome the plan, but we hope this will include a dollar-equivalency system which will not isolate the dollar completely. Big companies, including government institutions make payments using dollars because it is more a stable currency," Musokotwane said.
Chikwanda said that a dollar-equivalency system will be put in place, so that dollars may be used where appropriate, for example, in international trade.
Zambia Consumers Association (ZACA) executive director Muyunda Ililonga told Anadolu Agency in an interview Monday that the new legislation will be effective in keeping prices down.
"What is pushing prices hike is the unstable kwacha. Each time the kwacha loses value against the dollar, prices also go up. We believe that enforcing the use of the kwacha will restrict runaway prices."