A lasting solution to a stable exchange rate is now long overdue for a stable inflationary environment.
A gradual approach is needed to achieve an effective and efficient exchange rate market, as it is not a one size fit all.
CZI proposes a true liberalisation of the foreign exchange market where banks act as matchmakers linking buyers and sellers of foreign currency.
The central bank’s role will only be limited to using monetary policy instruments (adjustment of interest rates, reserve requirements, bank lending levels, open market operations such as treasury bills and selling or buying foreign currency on the market
Benefits of a liberal foreign exchange on economic stability
- It allows for free market price discovery of the exchange rate. This establishes trust in the market and resolves resentment on foreign earnings retention levels.
- It crowds in various holders of foreign currency such as exporters, NGOs, households, and informal sector into the formal economy. There are billions of US Dollars circulating in the informal sector.
- The central bank will concentrate on managing inflation, bring banking sector stability and building reserves from retained foreign currency earnings. This is largely the role of the central bank in most developed or developing nations.
- It curbs the need for the central bank to borrow externally to support the auction system. Zimbabwe’s foreign debt levels are already too high and unsustainable.
- It allows commercial banks to earn significant commissions, thus encourage foreign exchange savings and banking of foreign exchange proceeds.
- It guarantees price stability on the local market, provided the central bank reigns in on money supply growth and quasi fiscal operations.
CZI would like to underline their commitment to continuous, pro constructive engagement with government on all economic policy fronts in pursuit of the country’s economic growth targets.
CZI’s position on the local currency is that we must DEFEND OUR CURRENCY in a multi-currency environment and strengthen the economic fundamentals that support any currency in use.
Such fundamentals include prudence in money supply, a market-determined or liberal foreign exchange market, foreign exchange reserves and central bank transparency, especially on debt and liabilities.
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