According to local media reports, the Bank of Zambia has devised a set of fresh regulations designed to eliminate the utilization of foreign money, specifically the US dollar, in domestic debt settlements.

The local economy’s growing reliance on the United States dollar has prompted the Bank of Zambia to express strong concern that this trend weakens its ability to implement monetary policy and puts strain on the exchange rate. Two days ago, the central bank published a preliminary document stating that individuals who are found using foreign currency for domestic transactions may be subject to significant fines and/or imprisonment for a maximum of ten years.

The updated currency guidelines are expected to be released as a statutory instrument by the minister of finance and national planning. Upon implementation, it will mandate the use of the Zambian currency – kwacha ($0.042) and ngwee, for all local public and private transactions.

This information was also confirmed by the deputy governor for operations at the central bank, during a presentation at a trade fair held in Ndola, who stressed the risks associated with dollarization and pointed out that it limits the authorities’ capacity to effectively control monetary and exchange rate policies.

According to the bank official, the use of the dollar increases credit and liquidity risks, as well as weakens the central bank’s authority since dollar-denominated credit markets do not react to the Bank of Zambia’s regulatory measures. In an economy heavily reliant on the US dollar, the demand for the local currency diminishes, leading to a continuous devaluation of its worth.

In the extreme case scenario, the currency would lose its acceptability as money, the official warned.

Twelve years ago, in May of 2012, Zambia imposed limitations on the utilization of the US dollar within domestic enterprises, however, these regulations were lifted in less than twenty-four months.