The World Bank is right to argue that Zimbabwe needs infrastructure, stronger institutions, deeper financial markets, greater private investment and reforms capable of raising productivity and employment. Where its argument should be challenged, however, is on the sequencing of economic reconstruction.
By Brighton Musonza
There is, importantly, no sufficiently developed or universally accepted body of economic theory that provides a precise, swift and mechanically applicable transition path from a fully or heavily dollarised economy to a single domestic currency. The literature on dollarisation is far more developed on why countries dollarise, the conditions under which dollarisation persists, and the circumstances that can lead to de-dollarisation than on how a country should execute a rapid transition back to monetary sovereignty.
Ecuador has remained dollarised since 2000; El Salvador adopted the US dollar in 2001 and has maintained it; since 1904 Panama has operated for decades with the US dollar alongside the balboa; while countries such as Argentina and Peru have experienced prolonged episodes of high dollarisation without following a simple theoretical exit model. Even countries that have achieved substantial de-dollarisation, including Peru, did so gradually through a combination of macroeconomic credibility, financial-sector regulation, development of domestic-currency markets and changes in economic-agent behaviour rather than through a universally prescribed transition formula.
The absence of a settled theoretical blueprint, however, should not be mistaken for an argument that Zimbabwe can remain permanently dollarised. The absence of a textbook exit strategy does not eliminate the economic necessity of reconstructing a domestic monetary system. Zimbabwe’s circumstances require a country-specific transition built around credible monetary institutions, fiscal discipline, adequate reserves, deep domestic financial markets and a gradual strengthening of confidence in the local currency.
The policy challenge is therefore not to discover a ready-made theoretical model and mechanically apply it, but to construct the institutional conditions under which de-dollarisation becomes sustainable. Remaining permanently dollarised simply because the literature does not provide a universally accepted rapid-exit formula would amount to allowing a theoretical gap to become a permanent economic policy.
Zimbabwe should therefore not postpone the transition to a single domestic currency on the assumption that monetary reform must wait until structural reforms have produced a sufficiently strong economy. That approach risks confusing the symptoms of Zimbabwe’s economic dysfunction with the institutional architecture required to overcome them.
For Zimbabwe, the single currency is not simply another item on a long list of reforms. It is part of the mechanism through which the economy can reconstruct the relationship between the goods market, money market, credit market, investment market and aggregate demand.
The central question is therefore not whether Zimbabwe is ready for a single currency. It is whether Zimbabwe can fully reconstruct its economy without one.
The answer should be no.
Stability Is Not the Same as Equilibrium
Zimbabwe’s monetary debate has become excessively focused on price stability. That is understandable given the country’s history, but it is too narrow an economic framework for the reconstruction phase.
An economy requires more than stable prices. It requires an equilibrium in which production, income, savings, investment, money and demand interact through functioning markets.
The goods market determines what the economy produces and consumes. The money market determines the liquidity conditions under which economic agents transact and save. The credit market connects banks to households and businesses. The investment market converts savings into productive capital. The labour market connects investment and production to employment and incomes.
These markets cannot operate as disconnected islands.
Yet a heavily dollarised economy creates precisely that problem.
When the principal currency circulating through the economy is foreign, Zimbabwe does not possess the full monetary mechanism through which domestic liquidity, interest rates, credit creation, savings and investment can be coordinated with domestic production and demand.
This is the fundamental reason why a single currency should not be treated as a distant end-state.
It is part of the reconstruction mechanism itself.
The Single Currency Is the Missing Macroeconomic Link
A domestic currency provides the economy with a common monetary denominator through which the goods market and money market can interact.
When households and businesses earn, save, borrow and invest in the same domestic currency, changes in liquidity and interest rates can influence consumption, investment and production. Banks can expand or contract credit according to domestic monetary conditions. Businesses can finance working capital and capital expenditure in the currency in which much of their domestic revenue is generated.
The transmission mechanism becomes clearer.
An increase in productive investment creates demand for machinery, construction, labour and intermediate goods. That investment generates income. Income generates further consumption and savings. Savings return to the financial system, where they can be intermediated into another round of investment.
This is the circular flow that allows a domestic economy to reproduce and expand its own productive capacity.
A predominantly foreign-currency economy weakens that loop because the monetary system is not fully endogenous to domestic economic activity.
Reconstructing the Goods Market
The goods market is ultimately where economic development becomes tangible.
Factories must produce. Farmers must sell. Construction companies must build. Transport operators must move goods. Retailers must distribute them. Households must have incomes with which to purchase them.
For this market to expand sustainably, production must be supported by investment and investment must be supported by finance.
A domestic currency gives monetary authorities and financial institutions a mechanism for influencing domestic liquidity and credit conditions in response to domestic economic circumstances.
This does not mean printing money to manufacture growth. That would simply recreate Zimbabwe’s historical problems.
It means establishing a disciplined monetary framework in which money creation is anchored to productive economic activity, fiscal credibility, financial-sector regulation and reserve management.
The distinction is crucial.
Zimbabwe does not need monetary expansion without production. It needs a monetary system capable of financing production.
Reconstructing the Money Market
The money market is the institutional bridge between monetary policy and the wider economy.
Under a functioning domestic monetary system, the central bank can influence liquidity conditions, short-term interest rates and the availability of credit. Commercial banks respond to those conditions, while businesses and households respond to the resulting cost and availability of finance.
That interaction ultimately feeds into investment, consumption, employment and output.
A foreign currency regime severely limits this mechanism because Zimbabwe cannot independently determine the supply of the currency in which its economy predominantly operates.
The country can influence the domestic financial system, but it cannot fully control the monetary conditions governing the currency itself.
That is an important distinction.
Monetary sovereignty is not valuable because sovereignty is inherently desirable. It is valuable because it gives an economy the institutional capacity to manage its own monetary transmission mechanism.
Reconstructing Aggregate Demand
The same logic applies to aggregate demand.
Consumption, investment, government expenditure and net exports collectively determine the level of demand facing domestic producers.
Investment is particularly important because it does not merely create demand today. It expands the economy’s productive capacity tomorrow.
A new factory creates construction demand during its development phase, employment once operational and additional demand for electricity, transport, logistics, professional services and raw materials.
This is why monetary and financial reconstruction cannot be separated from employment policy.
The objective should be to establish a system in which money supports demand, demand supports production, production supports employment, employment creates income and income generates savings that finance further investment.
That is the macroeconomic circuit Zimbabwe needs to rebuild.
The Informal Economy Is Also a Monetary Phenomenon
Zimbabwe’s informal economy is usually discussed as though it were primarily a tax-compliance problem.
It is not.
It is also a financial and monetary problem.
When economic agents prefer US dollars because they regard them as a safer store of value and more reliable medium of exchange, transactions naturally migrate towards financial channels that operate outside the domestic banking system.
This creates a reinforcing cycle.
The more transactions occur outside banks, the smaller the domestic deposit base available for financial intermediation. The smaller the deposit base, the weaker the capacity of banks to provide domestic credit. The weaker the formal credit system, the greater the dependence of businesses on cash, informal lenders, supplier credit and foreign-currency transactions.
Informality therefore reproduces itself. The solution cannot simply be enforcement.
Zimbabwe must make the formal financial system economically more useful than the informal alternative.
A Single Currency Can Help Formalise the Economy
This is another reason why delaying the transition indefinitely is problematic.
A credible single currency would allow Zimbabwe to rebuild a domestic deposit, credit and payments ecosystem around one monetary unit.
Businesses would have a greater incentive to maintain formal bank accounts, borrow through formal institutions and retain working capital within the financial system.
Banks would have a larger pool of domestic savings to intermediate. The government would have a deeper domestic market for its securities. Pension funds and insurers could hold a wider range of domestic financial assets.
And capital markets could begin to develop around a domestic yield curve.
Currency reform would therefore become part of the formalisation process rather than merely an exchange-rate policy.
Investment Banking Must Become Part of the Reconstruction
Zimbabwe also needs to move beyond a financial system dominated by conventional commercial banking.
Commercial banks are designed primarily to intermediate deposits and provide loans. That is essential, but it is insufficient for an economy attempting to rebuild its industrial base.
Zimbabwe needs a much stronger investment-banking function backed by the Central Bank and its domestic single-currency money market.
Investment banks can connect capital with projects rather than merely connect deposits with borrowers.
They can structure corporate bonds, infrastructure bonds, municipal securities, project finance, private placements, equity issues, syndicated loans and other instruments capable of financing large-scale investment.
This is critical because reindustrialisation requires capital on a scale and over time horizons that conventional short-term bank lending cannot always provide.
The financial system must therefore evolve from one that primarily finances transactions to one that finances capital formation.
From Savings to Capital Formation
Capital formation is the process through which financial savings become productive assets.
With a reduced informal economy and more people employed, pension funds holding idle cash do transform the economy.
A pension fund investing in a power station, industrial park, logistics centre, housing development or municipal water project does.
The same applies to insurance companies, banks and investment funds.
Zimbabwe has substantial pools of institutional savings, but the challenge is to create credible instruments that convert those savings into productive domestic assets because of the informality and uncertainties of the US dollar financial system.
This is where investment banking becomes strategically important.
Investment banks can identify projects, assess risks, structure financing, bring together institutional investors and create securities that allow investors to participate in long-term economic development.
The result is a financial architecture driven by the Central Bank and domestic money market in which savings become capital, capital becomes productive assets, productive assets generate output and output generates employment and income.
Rebuilding the Municipal Bond Market
The same principle should apply to urban infrastructure.
Zimbabwe’s municipalities require enormous investment in roads, water, sewerage, drainage, waste management and public transport. Waiting for central-government transfers to finance all of this is neither realistic nor economically efficient.
Zimbabwe should reconstruct the market for Local Municipal Authority Treasury Bonds and other municipal infrastructure securities.
A properly governed municipal bond programme could allow cities to raise long-term domestic capital for clearly defined infrastructure projects.
The bonds could be supported by transparent revenue streams, ring-fenced repayment mechanisms, audited municipal accounts, enforceable covenants and appropriate regulatory oversight.
Institutional investors could then provide long-term capital while municipalities acquire the infrastructure required to expand their economic bases.
This would transform municipal finance from a recurring fiscal burden into an investment market.
Infrastructure Is an Asset, Not Merely Expenditure
This distinction matters.
A sewerage system is not merely government expenditure. It is productive infrastructure. A functioning road network is not simply a public-service expense. It lowers the cost of doing business.
Reliable water supply increases the value and productivity of urban land. Electricity infrastructure enables industrial production.
Railways reduce logistics costs and improve export competitiveness. Infrastructure therefore creates economic assets capable of generating future income.
The financial system should be designed to recognise this.
Investment banking can structure the projects. Municipalities can issue securities. Pension funds and insurers can provide long-term capital. Commercial banks can provide working-capital and construction finance.
The result is a financial ecosystem through which domestic savings finance domestic infrastructure.
Reindustrialisation Requires Patient Capital
Zimbabwe cannot reindustrialise through short-term speculative capital.
A manufacturing plant may take years to construct and longer to reach optimal capacity. Industrial parks require roads, electricity, water and telecommunications before tenants can operate. Mining beneficiation requires processing facilities and supporting infrastructure. Agricultural value chains require storage, irrigation, transport and processing capacity.
These are long-duration investments.
They require patient capital.
This is precisely why the reconstruction of Zimbabwe’s capital markets is as important as conventional banking reform.
A deeper domestic currency market would allow the development of longer-term debt instruments, corporate securities and infrastructure financing structures capable of supporting such investments.
The World Bank’s Sequencing Should Be Reconsidered
The World Bank is correct that Zimbabwe must improve its business environment, property rights, infrastructure, financial system and private-investment climate.
But these reforms should not be constructed as prerequisites for currency reform.
In Zimbabwe’s circumstances, they should be complementary components of one reconstruction programme. A credible currency supports financial-market development. Financial-market development supports investment. Investment supports infrastructure and industrialisation. Industrialisation creates employment. Employment expands household income.
Higher incomes deepen savings. Savings provide additional capital for investment.
That is the cycle Zimbabwe needs.
Waiting until every structural reform has been completed before moving towards a single currency risks postponing the very financial reconstruction needed to finance those reforms.
The Currency Must Be Credible, Not Merely Mandatory
There is, however, an important qualification.
A single currency cannot succeed simply because legislation declares it to be legal tender.
Zimbabwe’s history makes that abundantly clear.
The domestic currency must be credible.
That requires fiscal discipline, monetary restraint, adequate reserves, transparent foreign-exchange management, sound banking regulation, credible institutions and a government committed to avoiding monetary financing of fiscal deficits.
The objective should not be to eliminate the US dollar administratively and replace it with an unsupported domestic currency.
The objective should be to build a domestic currency that economic agents choose to use because it is reliable.
That is a fundamentally different proposition.
Reconstructing Macroeconomic Equilibrium
The deeper argument, therefore, is about equilibrium rather than currency symbolism.
Zimbabwe needs to reconstruct the interaction between the goods market, money market, credit market, capital market and demand system.
The goods market must generate production. The money market must provide liquidity. The banking system must transform savings into credit.
Investment banking must transform projects into investable securities. Capital markets must transform institutional savings into long-term investment.
Investment must expand productive capacity. Infrastructure must lower the cost of production. Production must create employment. Employment must generate incomes.
And those incomes must feed back into consumption and savings. That is a functioning macroeconomic system. Without a domestic monetary anchor, however, the connections between these markets remain incomplete.
Zimbabwe Needs Economic Reconstruction, Not Permanent Stabilisation
This is where Zimbabwe’s policy debate needs to become more ambitious.
The country has spent years attempting to stabilise an economy damaged by monetary instability, debt distress, weak institutions, inadequate infrastructure and declining industrial capacity.
Stabilisation is necessary. But stabilisation alone cannot build factories, roads, power stations, housing, water systems or formal jobs.
The next phase must therefore be about reconstruction.
And reconstruction requires institutions capable of mobilising domestic capital at scale.
A single currency should sit at the centre of that architecture—not as an ideological project, but as the monetary foundation for rebuilding the interaction between Zimbabwe’s goods market, money market, credit system, capital markets and investment economy.
From Currency Reform to Industrialisation
The ultimate objective is not the currency itself. The objective is what the currency makes possible.
A credible domestic currency can support a domestic banking system. A deeper banking system can support investment banking. Investment banking can create instruments through which pension and insurance savings finance long-term projects. Those projects can rebuild infrastructure and industrial capacity. Industrial capacity can create formal employment. Formal employment can broaden the tax base and expand household incomes.
That is how monetary reform becomes development policy.
Zimbabwe therefore should not approach the single currency as something to be introduced after development has occurred.
It should be part of the institutional architecture through which development occurs.
The World Bank is right that Zimbabwe needs stability, infrastructure, private investment, financial deepening and structural reform. But it is wrong to treat the restoration of a single domestic monetary system as something that can simply be deferred.
For Zimbabwe, the single currency is not the conclusion of economic reconstruction.
It is one of its starting points.
And if the country’s objective is genuinely to move from stabilisation to capital formation, from capital formation to reindustrialisation, from reindustrialisation to formal employment and from formal employment to sustained improvements in living standards, then Zimbabwe needs to rebuild not only its roads, factories and power stations, but the financial and monetary architecture that makes those investments possible.
