Here’s why the Zim dollar is still not favoured amongst locals

The Zimbabwean dollar, once reintroduced with promises of stabilizing the economy and bringing back trust in the local currency, continues to face uphill battles to gain favor among locals and foreign investors. In a recent interview with CNBC Africa, Batanai Matsika, the Head of Research at Morgan & Co, shed light on the challenges that the Zimdollar is facing in the current economic climate. Despite government assurances of the currency's resurgence, the reality on the ground tells a different story. During the festive season, merchants and traders have shown a strong preference for transacting in foreign currencies like the US dollar and the South African rand. Even when transactions are conducted in Zimdollar, they are often benchmarked against the USD, highlighting the lack of confidence in the local currency. Matsika pointed out that the timing of the Zimdollar's reintroduction may not have been ideal, given the overall poor confidence levels and weakening economic fundamentals in Zimbabwe's economy. He emphasized that trust in a currency is crucial and rebuilding that trust after years of foreign currency usage poses significant challenges. The performance of a currency is akin to that of a listed share, closely tied to the underlying economic conditions of a country. With forecasts projecting a 5.9% contraction in GDP for 2020 due to prevalent challenges like drought, Zimbabwe faces an uphill battle to instill confidence in the Zimdollar. Matsika recommended exploring alternatives such as joining a monetary union to address the currency woes and improve investor confidence. Notably, foreign investors have been cautious about committing funds to Zimbabwe, with portfolio investment flows dwindling amid exchange rate uncertainties. The exit of foreign investors from the local stock market has further added to the currency woes, making it crucial for the government to prioritize boosting confidence in the financial system. While short-term remedies like injecting liquidity have been attempted, a long-term strategy involving structural reforms and confidence-building measures is essential to attract foreign direct investment and portfolio inflows. As Zimbabwe navigates the challenges posed by the Zimdollar, the road ahead remains bumpy, requiring concerted efforts to restore trust and stability in the local currency.