Zambia's plans to limit the use of foreign exchange for domestic transactions are intended to stabilise the country’s currency, according to central bank governor Denny Kalyalya.

The Bank of Zambia revealed its intentions in June and has been consulting with market participants since then. The consultations are still ongoing, and a date for implementing the restrictions has not yet been set, Kalyalya said in an interview on Thursday in Pointe aux Piments, near the Mauritian capital of Port Louis, where the Association of African Central Banks held its annual meeting this week.

“We are bringing order to our currency. When you have other currencies intervening as mediums of exchange, it blunts your monetary policy,” Kalyalya said.

The Bank of Zambia's initial announcement faced criticism and scrutiny regarding its timing, as the economy is still recovering from a prolonged debt default, Bloomberg reports.

In addition, Zambia is dealing with its worst drought on record, which has affected food production and hydropower generation. These issues have contributed to volatility in the Kwacha, which has depreciated by 22% against the Dollar over the past year.

“When is the right time?” Kalyalya said in regard to plans to dedollarise the economy. “We are buffeted by all these challenges every now and again.”

Although the use of Dollars is not widespread in Zambia’s economy, some mall landlords and car dealers still charge in foreign currency. 

Furthermore, the Bank of Zambia governor described the nation’s energy crisis, with households experiencing just three hours or less of electricity per day, as unprecedented. 

While mine operators in Africa’s second-largest copper producer have managed to avoid production cuts by importing their own electricity, the expanding and worse-than-expected power deficit is affecting other sectors. As a result, the government has reduced its 2024 economic growth forecast to 2.3%.

According to Kalyalya, the central bank has not yet fully assessed the economic impact of the worsening power crisis.

“Clearly, it’s pointing to a very difficult situation. The competing needs have now multiplied rather than reduced,” he said.