African economies are struggling with unofficial dollarization (a situation where
economic agents accumulate foreign currency as a store of value or substitute foreign
currency for the legal tender) as their citizens progressively lose confidence in their local
currency (Stryker, 1999). In this regard, several African countries that are partially dollarized
include Angola, Malawi, and Nigeria among others (Mengesha and Holmes, 2013). This
development underscores the fact that at any given time there is competition among
currencies (Hayek, 1976). Through availability and freedom of choice, economic agents can
protect their purchasing power by adopting or substituting a weak depreciating currency with
a stronger currency. Zimbabwe is one such economy whose citizens lost confidence in the
domestic currency thereby forcing the government to officially dollarize in 2009.
Dollarisation refers to the process of officially or unofficially adopting a foreign currency as
legal tender. Consequently, during the last decade and a half, a number of emerging
economies have examined the concept of dollarization as a means to help stabilise their
financial systems. In 2000 Ecuador adopted the U.S. dollar as legal tender followed by El
Salvador in 2001; curbing inflation and improving the economic performance of these
countries. To this end, a number of studies have been conducted focusing primarily in the
Latin American and Asian economies with a limited focus on African countries.
This study intends to rectify this shortcoming and enhance its contribution by focusing on
the tourism industry which generates foreign currency. Most importantly, the main source
market for tourists to Zimbabwe being the United States. Whose currency Zimbabwe has
adopted, should ease the acclimatisation of American tourists through a familiar currency and
prices. Bearing in mind that the decision to either fully dollarize or partially dollarize is based
on political or economic consideration such as high inflation, currency instability and strong
ties with a particular country that generates the demand for another’s currency.
1.1 Historically
Historically, from 1990- 2008 Zimbabwe suffered from persistent high inflation which
culminated in hyperinflation and dollarization of the economy in 2009. Since then Zimbabwe
has been campaigning to increase tourism arrivals and revenues. These efforts culminated in
the joint hosting of the World Tourism Conference with Zambia in August of 2013.
Meanwhile, the World Bank (2009) reports that in 2007 a total of 29 million tourist arrivals
were recorded in Sub-Saharan Africa while the sector employed about four million people.
Thus far, prospects for growth of tourism are good as the World Bank is projecting that it will
achieve an annual growth rate of 5.5% over the next ten years notwithstanding the global
economic slowdown. This compares favourably with the world average growth rate of 4.1%.