The Bank of Zambia announced it will take a cautious approach regarding the potential ban on using the U.S. dollar in local transactions to avoid economic distortions. The Governor of the apex bank, Denny Kalyalya, stated that the central bank is currently collecting submissions from various stakeholders to gain a comprehensive perspective before making a final decision.
The apex bank has emphasized that its objective is not to discourage the use of the dollar but to enforce existing laws mandating the Kwacha (Zambia's currency) as the only legal tender for domestic transactions.
The central bank aims to strengthen monetary policy implementation, enhance financial system stability, and promote the use of the local currency.
During a mid-year budget review meeting, governor Kalyalya noted that the central bank had faced criticism for its stance but reiterated that the goal is to reinforce the law. The International Monetary Fund warned that the move could be ineffective and counterproductive. The Zambia Association of Manufacturers also expressed concerns, stating that the ban could harm the current economic environment.
Conversely, some stakeholders, such as the Center for Trade Policy and Development, have welcomed the decision. They argued that the increasing use of the U.S. dollar in local transactions undermines the monetary policy rate's effectiveness in curbing the Kwacha's depreciation.
Consultations on the draft currency regulations, which began last month, are ongoing and involve meetings with various stakeholders.
