(Bloomberg) -- Zambia’s central bank published plans to criminalize the use of foreign currency in the local economy amid the biggest rally in the kwacha in four months.

The southern African nation has faced severe currency volatility over the past five years, driving up the cost of imports and fanning inflation, which neared a two and a half year high this month. Companies from car dealers to mall landlords and hotels often charge in dollars, shunning the local kwacha. 

A draft document shared by the Bank of Zambia Saturday showed those found using foreign currency for domestic transactions may face prison terms of up to 10 years or fines. The kwacha gained about 7% on the last trading day of the week.

“When people basically are functioning significantly in dollars, then obviously the tools which we have to actually carrying out our mandate are blunted,” Bank of Zambia Deputy Governor Francis Chipimo said Friday. “External shocks are also in a way exacerbated in our market.”

Strong Recovery

The Bank of Zambia is still discussing the proposed rules with market participants, Chipimo said in comments broadcast on privately-owned Diamond TV Zambia. 

The kwacha has been among the world’s worst performing currencies over the past 12 months, depreciating by 28%, according to data compiled by Bloomberg. It’s staged a strong recovery this month to become the biggest gainer globally, after the nation finally ended a near-four year default on its dollar bonds and received an outsized $570 million payment from the International Monetary Fund. 

Factors that have contributed to the currency volatility include the drawn-out debt restructuring process, a plunge last year in the output of copper, Zambia’s main source of export earnings, and more recently a severe drought that’s increased the import bill. 

The servicing of its restructured dollar bonds may add to foreign currency pressures. 

Zambia introduced restrictions on dollar use among local businesses in May 2012 and abolished them less than two years later.

--With assistance from Matthew Hill.

(Updates with proposed regulations from first paragraph)

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