Monetary Policy: There is ample foreign currency in our markets to make our own currency so strong that we should be buying in hard currency to keep it weaker than the market will allow. There is no mystery behind the fact that the Rhodesian dollar was always twice the value of a US dollar. It was far too strong, and we should have followed monetary policies that allowed us to build reserves and stimulate exports and constrain imports. That is what all Far Eastern Tiger economies are doing, China and Japan included.
To achieve stability the following policy changes are needed. The approach has to be holistic and deal with all the elements involved. If not, no package will work.
Exchange Control: This must be abandoned on the current account. Some control on the capital account may be necessary. Export and import permits should be discontinued, they are not necessary and just increase the cost of trading.
The interbank market for currency should be totally liberalised, no control at all, currencies in the market should be allowed to find their own exchange rate based on market forces.
All incoming foreign exchange from trading should be converted into local currency on arrival and the company credited in local currency at the market rate of the day.
All domestic transactions, including all markets, all local and central Government transactions should be in the local currency.
Foreign currency should be available on demand at all Banks and Bureaus du Change at the market rate of the day plus charges.
Nostro accounts should be retained, and clients should be able to bank hard currency that is not a receipt of an export or a hard currency transaction for local services. This will include all remittances.
The Government must take steps to close down all leakages from the local market. These are estimated to involve up to US$6 billion a year.
The sole role of the Reserve Bank would be to manage the banking system and to set a target rate of exchange for the local currency that is deliberately set at a level which will keep it undervalued. They would maintain this rate by buying hard currency off the interbank market on a daily basis and accumulating reserves. The Bank should see to it that adequate supplies of paper currency and change is available for all domestic transactions in cash. Transactions in electronic form should be encouraged.
Do that, and I can guarantee that this would be a different country in 24 hours.
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