Use of dollar for local transactions may become a criminal offense soon

The Bank of Zambia (BoZ) has drafted new regulations to curb the use of foreign currencies in the economy, particularly during a local transaction.

The Currency Regulation would be issued by the Finance and National Planning Minister as a Statutory Instrument.

Once the Statutory Instrument was gazetted, the currency issued by the BoZ (Kwacha and Ngwee) would be the sole legal tender in the country for domestic public and private transactions.

The bank is concerned that the use of foreign currency in the local economy, commonly called dollarisation, had continued blunting its policy tools, while putting pressure on the exchange rate.

This prompted the central bank to introduce regulations which would criminalise the use of foreign currency in the local economy.

Read more: Bank of Zambia to maintain tight monetary policy amid rising inflation

This was announced by the BoZ Deputy Governor-Operations, Francis Chipimo, at the Trade Fair in Ndola in his presentation.

Chipimo noted that dollarisation was threatening to take root in the economy and if it did, had severe adverse consequences on the economy.

“Dollarisation limits the authorities’ ability to effectively implement monetary and exchange rate policies and amplify the adverse impact of external shocks on the economy.

“Besides raising credit and liquidity risks, dollarisation of credit undermines monetary policy transmission as market dynamics of dollar denominated credit barely respond to the central bank’s monetary policy actions,” Chipimo said.

He stressed that in a dollarised economy, the relevance and demand for local currency was put in jeopardy, resulting to, among others, continued erosion of the value of the domestic currency and ultimately its role as a medium of exchange and store of value.

“In the extreme, the currency would lose its acceptability as money,” Chipimo said.

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