Country Report Zimbabwe September 2010

Outlook for 2010-11: Exchange rates

The exchange-rate regime is likely to become an increasingly contentious political issue. Full dollarisation, with the US dollar as sole legal tender, is probably the simplest option, but as the differential between inflation rates in the US and Zimbabwe widens businesses will question Zimbabwe's ability to operate effectively with the US dollar as its currency, particularly as much of the country's trade is with its southern African neighbours. Membership of the Southern African Common Monetary Area, would bring "significant benefits", according to the IMF, but the introduction of stronger capital-account controls that this would necessitate could prove unpopular. Meanwhile, both Mr Mugabe and Gideon Gono, the governor of the Reserve Bank of Zimbabwe (the central bank), have called for a return to the Zimbabwe dollar. However, the IMF warns that a local currency could be reintroduced only after a track record of sound policies has been established.

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