The Bank of Zambia (BoZ) has announced it will adopt a cautious approach regarding the potential prohibition of U.S. dollar use in domestic transactions, aiming to avoid any economic distortion. BoZ Governor Denny Kalyalya revealed that the central bank is currently gathering input from various stakeholders before making a final decision.
Governor Kalyalya emphasised that the central bank is seeking a broad perspective on the issue by collecting views from both supporters and opponents of the move. This initiative, he said, is intended to enforce existing laws that designate the Kwacha as the sole legal tender for local transactions in Zambia.
“We have noted a frenzy of people going out to the media saying we are discouraging the use of the dollar. That is not the case; we just want to reinforce the law,” Kalyalya stated during a mid-year budget review meeting.
The BoZ commenced consultations on the draft currency regulations last month and has since conducted meetings with various stakeholders. Despite facing criticism from some sectors, Kalyalya stressed that the central bank’s aim is to uphold current regulations, bolster the implementation of monetary policy, and enhance the stability of the financial system.
However, the proposed regulation has garnered mixed reactions. The International Monetary Fund (IMF) has cautioned that such a move could be both ineffective and counterproductive. The Zambia Association of Manufacturers echoed these concerns, arguing that the regulation could be detrimental in the current economic climate.
Conversely, certain stakeholders have expressed support for the central bank’s initiative. The Center for Trade Policy and Development, a local trade and development think-tank, argued that the increasing use of the U.S. dollar in local transactions undermines the effectiveness of monetary policy measures aimed at curbing the depreciation of the Kwacha.
As businesses brace for the potential impact of the forthcoming decision, Governor Kalyalya urged them to adjust accordingly, regardless of the outcome of the consultations. The BoZ remains committed to reinforcing the use of the local currency and ensuring economic stability in Zambia.
