Zambia’s central bank has announced intentions to outlaw the use of foreign currency within the country’s economy, coinciding with the strongest surge in the kwacha in four months. The nation in southern Africa has grappled with significant currency instability over the past five years, driving up import costs and contributing to inflation, which reached its highest level in two and a half years this month. Many businesses, from car dealers to shopping mall operators and hotels, frequently quote prices in dollars, preferring foreign currency over the local kwacha.

According to a preliminary document disclosed by the Bank of Zambia on Saturday, individuals caught utilizing foreign currency for domestic transactions could potentially face penalties of up to 10 years imprisonment or fines. The kwacha experienced a notable appreciation of approximately 7% on the final trading day of the week.

Bank of Zambia Deputy Governor Francis Chipimo expressed on Friday, “When a significant portion of transactions are conducted in dollars, it undermines our ability to effectively implement our policies.” He also noted, “External economic shocks are further compounded in our market.”

Chipimo added that the Bank of Zambia is currently engaged in discussions with stakeholders regarding the proposed regulations, as reported on privately owned Diamond TV Zambia.

Over the past 12 months, the kwacha has been one of the worst-performing currencies globally, depreciating by 28%, according to Bloomberg data. However, it has shown remarkable resilience this month, emerging as the top-performing currency worldwide, following Zambia’s resolution of a nearly four-year default on its dollar-denominated bonds and a substantial $570 million disbursement from the International Monetary Fund.

Several factors have contributed to the currency’s volatility, including a protracted debt restructuring process, a sharp decline in copper production—the country’s primary export—last year, and more recently, a severe drought that has escalated the nation’s import expenditure. Zambia had previously imposed restrictions on the use of dollars by local businesses in May 2012, only to lift them less than two years later.

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