Zambia’s proposed ban on charging foreign currency in local transactions — punishable with 10-year jail terms — might defeat its own purpose, according to the International Monetary Fund (IMF). In June 2024, the Bank of Zambia (which is the Central Bank of Zambia) unveiled plans to curb increasing dollarization in the economy that it said blunts its tools to fight inflation.

Businesses have already criticised the proposed laws, calling them “punitive” and cautioning that they would potentially accelerate price increases, according to a recent local story. The IMF Resident Representative, Eric Lautier, told Bloomberg that macroeconomic stability, which includes controlled external pressures and low and stable inflation, would often be necessary for such policies to be successful.

According to Lautier, “forced de-dollarization measures are likely to prove ineffective and could even be counterproductive” unless they are coupled with a robust macroeconomic stabilisation plan and, depending on the circumstances unique to each country and the mode of execution. “We are assessing those at the moment.”

Following the worst drought in decades, Zambia’s annual inflation allegedly reached a 29-month high of 15.2% in June 2024. In addition, the country is recovering from a gruelling debt restructuring procedure, and its currency has seen volatility. The draft regulations are part of a larger set of measures that the bank is working to finalise in order to achieve macroeconomic stability. Although the Kwacha is the only officially recognised form of money in Zambia, many companies, including hotels, auto dealerships, and mall owners, usually set their pricing in US dollars.

According to IMF, Zambia which has a $1.7 billion economic program with the IMF and is considering asking it for more help, didn’t consul it on the plans before announcing them. The IMF has only just started assessing the initiative and has been consulting with the authorities including the Bank of Zambia about the details to evaluate its merits, Lautier said.

Africa is witnessing more efforts by governments to protect their economies from the effects of the Dollar.

Apart from Zambia, de-dollarization initiatives have been announced in recent weeks by Zimbabwe, Tanzania, Uganda, and Tanzania.