Abstract:
Dollarization has been put forward by some as the possible solution to institutional
weaknesses in the developing world. Zimbabwe dollarized in 2009 by legalising the use
of a basket of currencies, of which the United States Dollar (US Dollar) has emerged as
the principal currency in use. Dollarization in Zimbabwe initially resulted in a period of
significant growth, this has however slowed, and dollarization seems to be amplifying
institutional weaknesses in the banking sector, with various challenges being faced
including cash shortages and foreign payment restrictions.
The purpose of this study was to utilise qualitative methods to gain insights into the
viability of Zimbabwe joining the South African Rand Common Monetary Area, as a
means to transition out of utilising the US Dollar is the primary currency in use in the
country. The choice of the South African Rand was based on South Africa being
Zimbabwe's largest trading partner, and therefore the possibility of forming an optimal
currency area where Zimbabwe would benefit from the reduction of transaction costs
and liquidity support.
The results of the study showed that joining the Common Monetary Area would
improve the competitiveness of Zimbabwe's industries, strengthen the institutions,
improve monetary policy and fiscal discipline, which would also lead to the government
regaining the trust and confidence of the public. Joining the Common Monetary Area
would however also have its shortcomings, the main ones being the loss of monetary
policy autonomy.
