Quispeagnoli, 2002 that is the unofficial dollarization, semi official dollarization and official dollarization. It shows how dollarization has allowed zimbabwe to quash hyperinflation, restore stability, increase budgetary discipline, and reestablish monetary credibility. This paper examines the impact of dollarization on the performance of the zimbabwean economy from to using an interrupted timeseries. This saw the zimbabwe stock exchange start to quote prices of shares in the united states dollar usd. Evidence from zimbabwe stein masunda department of agriculture economics and development, midlands state university, p. The small african nation of zimbabwe gained independence in 1980, and it was in the same year that the zimbabwean dollar replaced the rhodesian dollar at par rate as the official state currency. Mauro mecagni, juan sebastian corrales, jemma dridi, rodrigo garciaverdu, patrick imam, justin.
Currency substitution, dollarisation and possibility of dedollarisation in zimbabwe doi. Dollarisation and possibility of dedollarisation in zimbabwe 1. Pdf lessons from zimbabwes hyperinflation and dollarization. Currency substitution or dollarization is the use of a foreign currency in parallel to or instead of the domestic currency currency substitution can be full or partial.
How zimbabwe and the dollar beat inflation sound money gives mugabes subjects a chance to eke out a living. In zimbabwe all the three types of dollarization were. The process of dollarization in zimbabwe was peculiar in that it was not backed by international reserves as is normally the case with countries that have dollarized. Investigating the impact of dollarization on economic growth. In 2006 i arrived in the capital city of harare, zimbabwe for the first time, after many years of research into this fascinating, if beleaguered country. Jonathan heathcote how does a countrys choice of exchange rate regime impact its ability to borrow from abroad. Dollarization has been put forward by some as the possible solution to institutional weaknesses in the developing world. Unbundling zimbabwes journey to hyperinflation and. Masum 45e zr 04 8 15muhammad maqsud hussain 45e zr 16 22fardin humayun 45e zr 25 23 31dipankar ghosh 45e zr 36 36 38hasnat imtiaz uddin ahmed 45e. Using the tobit regression approach, the following findings are established.
Dollarization and financial integration cristina arellano. Zimbabwe experienced a very difficult economic phase characterised by hyperinflation, negative economic growth, unavailability of basic commodities and negative economic growth rates during the. Oct 01, 2019 dollarization is a situation where a country, either officially or unofficially, uses a different countrys currency as legal tender for conducting transactions. A handsoff approach to currency management has served zimbabwe well since 2009, but a number of risks are beginning to emerge as the economy has slowly. The presentation summaries the hyperinflation in zimbabwe, its causes, and possible remedies. Zimbabwe has the following world renowned tourist attractions. Hyperinflation in zimbabweits causes, current situation and possible solutions 2. Specifically, we study the process of dollarization in east african countries and compare the trends of dollarization with those of tanzania. This study examined the effects of dollarization on business in zimbabwe focusing on economic indicators such as inflation rate, gdp, employment and ease of doing business during the period 20092015. Dollarization started off as unofficial dollarization until a time government decided to make it official and save the country from imminent collapse. Terrence kairiza national graduate institute for policy studies grips 7221 roppongi, minatoku, tokyo 1068677 email. Dollarization and globalization are constructed in such a way that there is an upper limit bound. Mar 22, 2011 linking zimbabwe s business cycle, even in the period of global recession, is a reality far rosier than the ignoble isolation of the zimbabwe dollar era.
Aug 29, 2018 we noticed the first use of the term dedollarization in may 2014. Agriculture and mining largely contribute to exports. Zimbabwe dollarized in 2009 by legalising the use of a basket of currencies, of which the united states dollar us dollar has emerged as the principal currency in use. It also means financial integration with the united states, which will force domestic financial institutions to. This paper tells the story of zimbabwe s hyperinflation period from 200009, and examines the inflationdepreciation in terms of purchasing power parity and the quantity theory of money. Second, dollarization can also establish a firm basis for a sounder financial sector. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a. In its younger years zimbabwe was seen by many as a contender to give south africa a tough fight for the top spot in. Price stability at the cost of external competitiveness in cambodia english abstract. The impacts of dollarization on zimba bwes tourism industry. Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. Chidakwa management college of southern africa mancosa, south africa this study examined the effects of dollarization on business in zimbabwe focusing on economic indicators such as inflation rate, gdp, employment and ease of doing. Ma pesa as private inside money, economic affairs, wiley blackwell, vol.
Aug 03, 20 dollarization started off as unofficial dollarization until a time government decided to make it official and save the country from imminent collapse. The economy of zimbabwe is mainly made of tertiary industry which makes up to 60% of the total gdp as of 2017. The objective of this study is to shed some light on the extent of dollarization in tanzania and possible policy options that may be adopted by the authorities to attenuate its potential harmful effects. Linking zimbabwes business cycle, even in the period of global recession, is a reality far rosier than the ignoble isolation of the zimbabwe dollar era. Liability dollarization can often lead to sudden stops, and to corporate and. Zimbabwe has the second biggest informal economy as a share of its economy which has a score of 60. Cambodia has recorded both rapid economic growth and macroeconomic stability in recent decades despite or thanks to high levels of dollarization. Analysts say zimbabwe reached its rock bottom in the 10 years but due to the negative effects of the us dollar the economy is expected to go down. There are several benefits of dollarization that should be noted. According to the tests conducted, it was found that dollarization did introduce some macroeconomic stability in zimbabwe although a few key macroeconomic variables showed a sustained improvement. In essence, there is a threshold of 100%, which cannot be exceeded. Examining the effects of dollarization on ecuador coha. Moreover, replacing a countrys failed currency with a reserve currency such as the dollar so called dollarization is not as easy as it sounds. Victoria falls, mana pools, kariba dam, great zimbabwe ruins and the eastern highlands as potential tourist destinations.
This comprehensive article explains different ways of dollarization and analyzes its challenges for poor countries at the economic and ideological level. Investigating the impact of dollarisation on economic. The effects of dollarization on human resources in the. This paper examines the economic impact of the inception of the full dollarization 1 in zimbabwe s economy after the effects of hyperinflation and an unprecedented depreciation of an exchange rate. The only foreign currency that the government had was. In the case of dollarization any country with dollarization index of 100% is considered to be fully dollarized. The paper also discuss the possibility and the requirements for dedollarisation to take place. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for. Russian state media reported on what was labeled a dedollarization meeting among top russian officials, ahead of a summit between president putin and chinese president xi. Unbundling zimbabwes journey to hyperinflation and official. Unbundling zimbabwes journey to hyperinflation and official dollarization by. It shows how dollarization has allowed zimbabwe to quash hyperinflation. Although the world economic crisis has almost dethroned the dollar, dollarization has been a big issue for many developing countries particularly in 1990s. Currency boards that lock local curren cies to the dollar or the euro also exist in hong kong, estonia, bulgaria, and lithuania.
Dollarization and the unbundling of globalization in sub. An investigation into dollarisation and its impact on tourism. This paper examines the economic impact of the inception of the full dollarization 1 in zimbabwes economy after the effects of hyperinflation and an unprecedented depreciation of an exchange rate. First, from both economic and statistical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is weaker on dollarization. Dollarization and the zimbabwes economy, journal of economics and behavioral studies, amh international, vol. Zimbabwe is running out of cash and needs to print more moneyso its central bank will print a new currency pegged to the u.
Investigating the impact of dollarisation on economic growth. Pdf the impacts of dollarization on zimbabwes tourism. Although the exact impact of dollarization on ecuadors economic growth is beyond the scope of this study, after dollarization, ecuador has enjoyed an average annual economic growth of 4. Subsequent to dollarization in zimbabwe, there has been an influx of imported goods into the country, despite the availability of some products locally the ministry of finance and economic development, 2015. Dollarization brought about some sanity in the economy and some relief of economic recovery to zimbabwe as a whole. An interrupted timeseries analysis raphael tabani mpofu abstract this paper examines the impact of dollarization on the performance of the zimbabwean economy from 2003 to 2014 using an interrupted timeseries analysis. The impacts of dollarization on zimbabwes tourism industry. An investigation into dollarisation and its impact on. Investigating the impact of dollarization on economic. Zimbabwe experienced a very difficult economic phase characterised by hyperinflation, negative economic growth, unavailability of basic commodities and negative economic. First, from both economic and statistical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is. Some small economies, for whom it is impractical to.
We build a small open economy model in which the government can potentially respond to shocks via domestic monetary policy and by international borrowing. Dec 27, 2019 effects of dollarisation in zimbabwe pdf abstract. This paper tells the story of zimbabwes hyperinflation period from 200009, and examines the inflationdepreciation in terms of purchasing power parity and the quantity theory of money. Full dollarization is the most direct, irreversible, and credible way of bringing about tighter trade and financial integration bogetic 2000.
This article investigates the recent monetary experience of zimbabwe with dollarization. Dollarization means more than merely the adoption of a foreign currency. Dollarization is a situation where a country, either officially or unofficially, uses a different countrys currency as legal tender for conducting transactions. Doc effects of dollarization on zimbabwe business growth. The original presentation has a lot of animations which i dont think will work here. Guldewolf and others 2004 suggest that dollarization could undermine financial stability through risks associated with liability dollarization, that is, when the increase in local currency value of dollar liabilities exceeds the value of the borrowers income flow.
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