BY MBONO MDLULI
MALKERNS – The MTN Bushfire Festival plays a vital role in bringing in foreign investments into Eswatini, through the process of what is known as the dollarisation.
Yesterday (Saturday, June 1, 2024), Prime Minister Russell Mmiso Dlamini described this entertainment showpiece as the one that brought dollars into the country. He further said Bushfire put the country on the global map because it was now known all over the world, as people from many countries and almost all the continents took part in this event.
The event was attended even by the likes of former Botswana’s President Lieutenant General Ian Khama. Artists came from countries such as South Africa, USA, Mozambique, Spain among other countries.
The process of accepting dollars or any foreign currency into any country has become widely known as dollarisation, according to Western Union (westernunion.com). This process can happen informally (when businesses decide amongst themselves to accept the dollar as a medium of exchange) or formally (when a country adopts the dollar or any foreign currency as an official medium of exchange).
The advantages of dollarisation include the following, according to Western Union:
• Faster development – dollarisation promotes economic stability. Investors may feel more secure when investing in that country, a process that can spur more investments.
• Improve global economy – the introduction of the US dollar into a country can help that country’s economy to be integrated into the world markets, because of its wide acceptability.
• Prevent speculative attacks on foreign currency – by using a foreign currency, countries’ domestic currencies could be less susceptible to speculative foreign attacks. A speculative attack happens when there is massive selling of a currency, leading to its drastic devaluation.
However, the dollarisation process comes with its own disadvantages, according to Western Union. The disadvantages may need to be managed. They are the following:
• Loss of seigniorage – when a country undergoes dollarisation, it first reduces its domestic currency by buying it back. Seigniorage, or the profit a country makes when issuing its currency, funds this activity. After dollarisation, a country loses its ability to print its own currency and loses future seigniorage.
• Loss of monetary autonomy – when a country dollarises, it loses control over its money supply and its ability to affect the lending rate. It also loses the direct control over its own economy.
• Subject to economy of a foreign currency – if a country uses a foreign currency for transactions, the economy of that country will be subject to the economy of the respective country.
