2.  Full Dollarisation: Official use of foreign currency on all transactions, except the need for coins.  Partial Dollarisation:- Occurs when a country keeps its own local currency in circulation along side foreign currency.  Unofficial Dollarisation: Use of foreign currency in selected transactions although it may not be legal tender. 1

3.  Hyper - inflation followed by frequent devaluations (currency crisis) and crisis in banking sector  Loss of faith in local currency  Financial instability 2

4.  Hyper Inflation from 2006 to 2008  Annual Inflation was 231 million per cent by July 2008  Official exchange rate was fixed  At least 3 other market exchange rates emerged:  Old Mutual rate  Black market rate  United Nations rate 3

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6.  Macroeconomic instability  Currency crisis  Banking sector vulnerabilities  Cash crisis  No deposits except salary based short term deposits 5

7.  Economic Stability  Confidence during early stages of dollarization  Signs of economic recovery  Low & stable Inflation  Confidence in banking sector-build up of deposits 6

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10.  Distorted pricing mechanism  Prices have remained high (hyperinflationary hangover)  Expectation of high margins  High interest rates  Loss of seignorage revenue  Limited fiscal space  Shortage of small denominations 9

11.  Loss of Independent or autonomous Monetary Policy  Limited Instruments to influence the market  Lender of Last Resort 10

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19. Narrow Definition of Monetary Policy Refers to regulation of the supply of money and bank credit to achieve the following objectives: a. Economic growth and stability b. Promote employment c. Price stability and low inflation d. Financial market and interest rate stability 18

20. Major Tools of Monetary Policy a. Open Market Operations – buying and selling of paper/bonds; b. Discount Loans – Discout window to provide short term liquidity support to banks; c. Changes in reserve requirements 19

21.  Dollarisation does not impede the ability of a central bank to provide short-term liquidity support to banks - Interbank facility;  Dollarisation does not impede a central bank from instituting reserve requirements;  Dollarisation removes (or impairs) the central bank’s ability to fully (independently) guarantee the banking system or to fully back bank deposits. 20

22.  Assess to capital  Increased Investment  Increased Production  Increased Exports  Exploitation or our natural recourses  Integration of Zimbabwe into the global economy  Change mind-set, there is no substitute for hard work.  High degree of transparency and accountability  Overall Production, Production, Production and Competitiveness 21

23.  Panama adopted dollarization in 1904.  Liberalized capital controls.  Open banking system.  This promoted international lending through numerous international banks that regulate liquidity levels in the economy.  Excess Liquidity is invested abroad and shortages are bridged by injections from international bank’s parent companies.  In the absence of a LOLR, Panama instituted strict bank regulations typified by bank auditing guidelines that assist in the monitoring of bank practices, credit guidelines and overall bank administration.

24.  Ecuador embraced dollarization in September 2000 through enactment of the Economic Transformation Law (ETL).  The ETL provided for the development of a liquidity fund, and the modernization and tightening of banking supervision and regulations.  Aim was to supplement the Central Bank’s capacity when liquidity challenges occurred.

25.  Banks were required to allocate 3% of their deposit base to the fund.  Banking regulations in Ecuador were restructured and tightened.,  Stringent capital adequacy regulations aligned to Basel standards, and new credit risk centers, were established to improve prudent supervision. 24

26.  In 2001, the Salvadoran government implemented the Monetary Integration Law that made the dollar legal tender.  The requisite steps including the institution of the Monetary Integration Law (MIL) were taken to integrate the Salvadoran economy to world markets.  The MIL increased the financial system’s liquidity requirements.  Previous bank reserves were converted into a remunerated liquidity requirement that banks accessed to fund short-term liquidity shortfalls.

27. i. Is that the economic challenges i.e. shortage of liquidty, lack of competitiveness and negative perception besetting the economy are not a currency phenomenon but that they are a production phenomenon. ii. It is critical to appreciate this hypothesis to avoid spending our national energy on focusing on non economic fundamentals. iii. That the usage of foreign exchange as our domestic currency is the New Normal. Dollarisation is therefore our New Normal for stabilising the economy. iv. Dollarisation is similar to a Monetary Union such as European Monetary Union (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) do not have their own currencies. They use a common currency called the Euro. One of the main goals of forming a currency union is to synchronise and manage each country’s monetary policy.

28. v. We need to rally behind our mission statement and be guided by our national vision.  To transform the economy through beneficiation (value addition) and empowerment.  Our Mission:- to put in place measures to grow the economy.  Value System:- transparency, accountability and patriotism (moral vale of patriotism) Patriotism is love for one’s country and desire to make it better.

29.  THANK YOU AND MAY GOD BLESS YOU ALL 28