De‐dollarization in Zimbabwe: What lessons can be learned from other sub‐Saharan countries?

Zimbabwe has had a tumultuous currency history. In 2019, it introduced a new currency. To make the new currency widely acceptable, International experience suggests that the introduction of a new currency, following a period of official dollarization, requires the introduction of policies that go beyond just changing the law. This paper, aims to draw lessons from other African countries on how to de‐dollarize effectively. Using various econometric techniques and a new database, this paper documents the pattern of dollarization in African economies over the last decade and assesses the determinants of dollarization compared to the rest of the world. It illustrates that despite an improved macroeconomic environment, dollarization remains elevated, likely due to the region's volatile history. This indicates that dollarization should decline going forward provided that macroeconomic stability is achieved and preserved. The lessons for Zimbabwe are also that it's important to use legal, regulatory and market based incentives to nudge de‐dollarization, and that it will take time.