eBusiness Weekly
Blessing Nyatanga
Everyone will concur to say the Zimbabwe macro-economic environment has been largely affected by exorbitant exchange rates where there’s a huge premium on the price of the US dollar.
It is extremely difficult for the ordinary citizen who seeks to convert their local earnings to purchase the highly scarce US dollar and settle their monthly bills.
The major challenge which confronts the consumers is a high demand for the greenback with limited supply and ultimately failing to satiate their appetite.
The situation has often created large discrepancies and resulted in the local currency rates and US dollar rates failing to converge.
In this article we will seek to discuss the ways that can be implemented to eliminate the common enemy.
Money supply
The cardinal rule in monetary economics indicates that an increase in money supply will often reduce the value of a currency and hence ultimately lead to an inflationary environment.
In the case of the Zimbabwean economic conundrum, it was evident in the past weeks that the Government made attempts to mop up liquidity from the market an attempt to stabilise the exchange rates and ensure that the black market barely thrives.
The liquidity was moped up through gold coin purchases and other incentives to encourage the use of the local currency.
The results have seen the black market activity slowing down and has also led to the appreciation of the local currency.
In essence these are the fundamentals of money supply that should be addressed and dealt with in our attempts to eliminate the parallel market rate.
Increase the level of production
It is fundamental and imperative for the Government of Zimbabwe to increase production and boost exports in a bid to make the local currency attractive.
It is in our best interest as a country to incentivise production that is produce more goods and services to attract more countries to purchase our goods and services. The process of demanding for our local currency to secure locally made products actually creates an attraction of our currency and that in essence leads to increased value in the Zimbabwean dollar.
It has always been highly important as a country to leverage on highly demanded goods and use those to ensure that our currency doesn’t lose value.
Russia’s currency has remained relevant in the past months due to their supply of gas and oil despite that conflict that has attempted to shake them economically. That in essence shows the power of having increased production and attracting foreign countries to demand our Zimbabwean dollar.
Increase interest rates
Increasing interest rates on investment is imperative in attracting foreigners to seek our currency and invest locally which will increase the value of our currency and thwart the parallel market from thriving.
The government through the central bank of Zimbabwe can adjust their interest rates and making them attractive to the foreign market. If foreigners come in to seek lucrative rates on investment ,it ultimately leads to an increase in the value of our local currency a move which can help us eliminate the black market as we have a more solid and attractive local currency in circulation.
Maintain a free Floating exchange rate system
On the backdrop of an unabated surge in the black market rate, it may be fundamental to maintain a free floating exchange rate system where the forces of supply and demand determine the prevailing rates at any given time.
It would be imperative to determine the true rate through letting the forces of supply and demand settle the price of any given currency. However, while letting these forces prevail, it is important to also ensure discipline within the market and avoid rates from overly shooting where there’s no government intervention.
Encourage the use of the local currency and instil confidence in the market
The Government has a mandate to ensure that the locals use the local currency more and should therefore implement ways to inspire confidence and encourage its use.
In the past months we saw the ministry of finance putting laws that duty and other tax obligations were to be paid for in the Zimbabwean dollar .Other utilities such as electricity also required the local currency to settle. All these measures are good in increasing demand for the local currency and ultimately increasing its value, a process that aids in eliminating the black market rate.
Conclusion
It is evidently clear that the surge in prices of goods came as a result of the parallel rate thriving with traders setting exorbitant prices on the purchase of the greenback. It is not ideal that black market should thrive and discourage the use of the local currency hence imperative to put in places measures that can revive confidence in the Zimbabwean dollar in the ultimate bid to eliminate the common enemy which is the parallel market rate
Blessing Nyatanga
Blessing Nyatanga holds a Bachelor’s Degree in Banking and Investment Management from NUST/0784909184/[email protected]
