Was Dollarization a Success in Zimbabwe?

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1. Introduction
At independence in 1980 the Zimbabwe dollar replaced the Rhodesian dollar at par at a rate which was higher than the American dollar. Although this quickly deteriorated, it was not until the late nineties that a series of events led to the demise of the Zimbabwean dollar. In 2008 in an 18-month ‘experiment’, foreign currency was accepted as legal tender for transactions with a set number of retailers.

“Honorable Members will be aware that in the hyper-inflationary environment characterizing the economy at present, our people are now using multiple currencies for day to day business transactions, alongside the Zimbabwe dollar. These currencies include the South African Rand (ZAR), United States Dollar
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With dollarization of the economy in 2009, the once vibrant banking sector was suddenly facing the grim prospect of disintegration, which had plagued sectors such as teaching during the peak of the Zimbabwean crisis. The banking sector was adversely affected by the dollarization of the economy, as the speculative activities that were reaping huge rewards for the banks were wiped out overnight by the adoption of more stable currencies at the expense of the precarious Zimbabwean dollar. This spelt disaster for the banking fraternity, as most banks in the first few months of dollarization struggled to pay their workers in hard currency and instead were forced to downsize their operations and lay-off some of their employees.

The paper argues that in complete contrast to most sectors in the economy, the banking sector boomed during the crisis, and the Zimbabwe Congress of Trade Unions (ZCTU) monthly remuneration lists in 2008 saw the banking workers consistently topping the lists. However, the dollarization of the Zimbabwean economy turned the tables on this once prosperous sector, as bank workers like the bank tellers and other clerical workers found themselves being laid-off, as most banks struggled to remunerate their workers in hard currency.

1.12 Objectives

❖ To assess the performance of the banking sector before and after dollarization. ❖ To

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