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Dollarization of Domestic Transactions Detrimental to the Economy – Musokotwane

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The Minister of Finance and National Planning, Dr. Situmbeko Musokotwane, has explained that dollarization of domestic transactions is detrimental to the country’s financial stability.

Issuing a ministerial statement in the National Assembly today in response to an issue raised by Mr. Anthony Mumba, the member of Parliament for Kantanshi Constituency, Musokotwane stated that using the United States Dollar for local transactions gives rise to mismatches in financial institutions’ foreign currency assets and liabilities when there is a steep movement in the exchange rate.

He said on June 20, the Bank of Zambia began a consultation process regarding the draft foreign currency regulations through the Public Private Dialogue Forum and that these proposed regulations were not stand alone, but are part of the broader policy measures the government is implementing to reform the economy.

Musokotwane explained that the broad goals of the proposed currency regulations are to enforce existing laws and strengthen monetary policy implementation, “which works better by influencing the quoting and pricing of domestic transactions in Zambian Kwacha.”

Shortly after taking office in 2011, the late President Michael Sata’s government banned the use of the dollar for domestic transactions, among other monetary policy measures.

Musokotwane said his government’s economic reform measures have included financial sector reforms, such as the electronic balance of payments and the export tracking framework.

Regarding the phasing out of cheques as instruments of payment, the minister stated that the reserve bank is currently discussing and consulting on the possibility of phasing out cheques, hence, a decision has not yet been reached.

“Broadly, phasing out cheques is one of the key initiatives being pursued under the National Payment Vision System and Strategy for 2023-2027. This is mainly on account of the significant decline in the usage of cheques over the past decade,” he said.

He reiterated that the Bank of Zambia has embarked on stakeholder consultations to allow for wider discussion and feedback, which will help to create the necessary awareness on the intent of the regulations and to ensure that they work well.

He assured the public and all stakeholders that the discontinuation of cheques usage would be done in a “consultative, coordinated, and phased manner” and that the plan is for a more gradual approach with a timeframe of at least 18 months.

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