The Chinese Ambassador to Zambia Han Jing says Chinese businesses in Zambia are encouraged to use the local currency to lower the costs arising from currency exchange fluctuations and better support industries.
This position supports the government’s move to discourage the rampant use of foreign currencies, particularly the US Dollar, in local financial transactions.
Jing said China encourages Chinese businesses and investors in Zambia to actively operate in line with the country’s development strategies and step up their investments to support value-addition improvement and increase the share of manufacturing in the economy.
In July 2024, the Bank of Zambia announced plans to introduce regulations intended to de-dollarize the economy to curb inflation and economic instability amidst resistance from some businesses, including the Business Coalition Taskforce, which claimed the regulations would be punitive and hostile.
In a ministerial statement to the National Assembly at the time, Finance and National Planning Minister Situmbeko Musokotwane explained that the draft Foreign Currency Regulations were broadly intended to enforce the existing law and strengthen the implementation of Monetary Policy, which works by influencing quoting and pricing of domestic transactions in Zambian Kwacha.
“Dollarization can be detrimental to financial stability as it gives rise to mismatches in the foreign currency assets and liabilities of financial institutions when there is a steep movement in the exchange rate. The draft Foreign Currency Regulations are, therefore, also aimed at enhancing financial sector stability.”
The Centre for Trade Policy and Development supports de-dollarization as a means of reinforcing the Kwacha as the primary currency for transactions to help restore its respect and enhance financial stability, as the practice of quoting prices in dollars diminishes the relevance of the Kwacha in day-to-day transactions, rendering monetary policy tools less effective.
This would not be the first time that routine pricing and paying for local transactions in the US dollar would be legislated against. In 2013, Statutory Instrument No. 33 was introduced under then-President Michael Sata, prohibiting quoting local goods and services in foreign currency.