At least an adjusted exchange rate can allow Zimbabwe economy to take shape

The adjusted exchange rate allows Zimbabwe economy to tick

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By Elvis Dzvene

Zimbabwe’s new fiscal and monetary measures have left the economy in a state of extreme confusion, fuelling inflation rate to fluctuate above 200%.

On October 1, Finance Minister Mthuli Ncube and the Reserve Bank of Zimbabwe Governor John Mangudya raised tax on electronic transactions to 2% from a flat five cents per transaction as a fundraising strategy and separated current accounts into FCAs and RTGS accounts which perpetuated adverse economic conditions which need to be normalised using the adjusted managed exchange rate such as 1USD: Rtgs2, as supported by the rate which is oscillating but above 200%.

 

This adjusted exchange rate regime will try to strike a balance between the bidders and offers of US dollar.

 

Out of all things, the existence of enforced pegged exchange rate USD: RTGS (bond) 1:1 is a disaster in its own which perpetuated economic instability. This calls the need for an adjusted exchange rate to eliminate speculated prices caused by lack of reasonable legalised formal prices.

 

Economically, bond notes can never be at par with USD. If it is, then there was no reason to separate current accounts into RTGS Accounts and FCAs. The disparities are witnessed by an unstoppable sharp increase in the exchange rate of USD and bond currency following separation of the two accounts. The development led to a sky rocket increase of prices, shortage of goods, and growth of the black market to mention a few.

 

Government efforts to unleash street forex dealers are in vain, because the money will simply remain in the informal sector. Now there is need to dissolve the black market by paving way for forex deposits into banks. Is it possible for a client to deposit 100 USD for 100 bond note?

 

It’s a clear no because of abnormal rate offered in the market (1USD: RTGS 2.70). The advice that can demolish the black market and increase our bank forex reserves is via adjusted exchange rate. This clears the black market and confusion in the sense that people will just exchange their currencies in the banking hall at a relatively favourable rate.

 

The implementation of an adjusted exchange rate will assist the economy in various ways that include:

  • Dissolves the black market forex dealing by taking money from the informal channel into the formal circulation as a result of favourable exchange rate provided.
  • Banks forex reserves will tend to increase as a result of a favourable exchange rate that attracts forex deposits. This will help manufactures in accessing forex at a relatively lower exchange rate which may lead to a drop of goods and services prices.
  • It eliminates confusion. Zimbabwe’s new monetary and fiscal measures have left the market in a state of confusion, and the country annual inflation rate topped by 250%. The provision of an adjusted exchange will bring a formal price in bond notes and USD and bond notes.

 

For the adjusted exchange rate to effectively become a long term solution there is need for the government to pay part of civil servants wages and salaries in USD. The RBZ should make sure whenever they print bond notes they are backed with forex (or remove bond notes), liberalise forex market, fix fundamentals to increase productivity, boost value addition and reduce the cost of doing business.

 

In conclusion, it is important to note that Zimbabwean economic problem is based on trust issues. There is need for policy makers to be vigilant when it comes to encouragement of foreign currency deposits by showing transparency. Above all for the Zimbabwean economy to tick again, the only solution is by having a functional industry.




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