LIVINGSTONE MARUFU
The Bankers Association of Zimbabwe (BAZ) says the government should clarify its position on the multi-currency system as the legislation which cemented the use of foreign currency is expiring next month.
Instead of tying the multi-currency regime to the government’s economic blueprint, the National Development Strategy 1 (NDS 1), the administration should make clear and proper communication given that the Statutory Instrument (SI) will expire soon, BAZ said.
“SI 118A is a temporary presidential measure that should last for six months (to December 2022). There is a need for clarity on what happens when the S.I expires.
“Tying the multi-currency to NDS1 creates further questions about the post-NDS1 era as well, hence the need for a clear exit strategy as and when the time permits,” BAZ said.
In June this year, the government of Zimbabwe took significant steps to stabilise the exchange rate as announced through the presidential policy statement and other policy measures.
The impact of these measures signalled to the market the government’s total commitment to enhancing the country’s foreign exchange management systems.
The key drivers of exchange rate instability in any economy were fiscal deficits and money creation by the monetary authorities.
The economy has enjoyed a modicum of stability.
However, the confidence deficit among economic agents has resulted in increased demand for US$ as a store of value.
This is reflected in the increased holdings of foreign currency balances in the banking system.
The lack of confidence and high inflation expectations have incentivised economic agents to engage in parallel market bench-marking of prices; and a skewed preference for US$ for commercial transactions, and forward exchange rate pricing, thus creating a vicious cycle of increasing prices which was self-fulfilling.
The government has clearly stated its intention of maintaining a multi-currency system based on the dual use of the US dollar and the Zimbabwe dollar.
But the market lacks confidence that the multi-currency system is here to stay for the foreseeable future and to eliminate speculation and arbitrage based on this issue, the government has decided to embed the multi-currency system and the continued use of the US dollar into law for the NDS1 period.
