<ul> 
 <li>Zambia is taking steps to reduce its dependency on the US dollar.</li> 
 <li>The IMF warns that de-dollarization measures could backfire due to insufficient monetary infrastructure.</li> 
</ul> 
In a determined bid to combat inflation, Zambia <a href="https://www.ethnews.com/de/ist-die-juengste-rallye-von-bitcoin-nachhaltig-analysten-sagen-herausforderungen-fuer-q3-2024-voraus/">has decided</a> to pursue de-dollarization, despite its struggling currency. This strategic move seeks to stabilize the nation’s economy, but it comes with significant risks. 
<h2 id="zambia-s-inflation-crisis-and-de-dollarization-measures">Zambia’s Inflation Crisis and De-Dollarization Measures</h2> 
Zambia, located in Southern Africa, has imposed a ban on transactions using foreign currencies. This prohibition, which can lead to up to ten years of imprisonment, is designed to curb inflation. However, the International Monetary Fund (IMF) has raised concerns that these de-dollarization efforts may be counterproductive due to the country’s lack of robust monetary infrastructure. 
As of June last year, Zambia’s annual inflation rate soared to 15.2%, the highest in 29 months. This spike was primarily attributed to one of the worst droughts in decades. In response, Zambia’s central bank has enacted strict measures to halt the de-facto dollarization of its economy, which has seen the Kwacha, Zambia’s official currency, depreciate significantly over the past few years. 
Despite the Kwacha being the only recognized legal tender in Zambia, the majority of prices in the country are quoted in US dollars due to the Kwacha’s substantial depreciation. Between 2020 and 2025, the Kwacha lost over 60% of its value against the dollar, currently trading at 25 ZMW per USD. Businesses have expressed concerns over these prohibitive measures, as they complicate the economic landscape. 
<h2 id="imf-s-perspective-and-historical-context">IMF’s Perspective and Historical Context</h2> 
The IMF has voiced skepticism about the effectiveness of Zambia’s forced de-dollarization strategy. Eric Lautier, an IMF representative, <a href="https://www.ethnews.com/de/how-whale-buying-spree-and-german-sell-off-shape-bitcoins-short-term-price-trajectory/">emphasized</a> that such measures require a stable macroeconomic environment to succeed. He stated, 
<blockquote>
 “Forced de-dollarization measures are likely to be ineffective and could even be counterproductive without a comprehensive stabilization plan.”
</blockquote> 
Interestingly, Zambia currently has an economic program with the IMF worth over $1.7 billion. Lautier noted that the IMF was not consulted before the implementation of this new regulation. 
This situation draws parallels to Venezuela’s past economic strategies. In 2005, Venezuelan President Hugo Chávez enacted a decree to control foreign currency exchanges, effectively eliminating the free convertibility of the Bolivar without government oversight. This measure aimed to prevent capital flight but led to severe economic complications as the Bolivar continued to depreciate against the dollar. By 2017, Bitcoin emerged as a crisis solution, allowing Venezuelans to convert Bolivars into Bitcoins via peer-to-peer platforms, highlighting the dire consequences of restrictive currency policies. 
Zambia’s current efforts echo Venezuela’s past, raising questions about the potential outcomes of such stringent de-dollarization policies. As Zambia <a href="https://www.ethnews.com/bitcoin-set-to-lead-q3-2024-dominance-indicates-bullish-prospects-ahead/">moves</a> forward, the effectiveness and repercussions of these measures will be closely watched by both national and international observers. 
The post <a href="https://www.ethnews.com/zambias-bold-move-to-fight-inflation-by-reducing-dollar-dependency/">Zambia’s Bold Move to Fight Inflation by Reducing Dollar Dependency</a> appeared first on <a href="https://www.ethnews.com">ETHNews</a>.

Zambia’s Bold Move to Fight Inflation by Reducing Dollar Dependency

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