The Zimbabwe dollar will stabilise because of increased demand for the local currency provided that the government resists the temptation to print money ahead of the elections on 23 August, a member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee, Persistence Gwanyanya said today.
Writing in the Sunday Mail, Gwanyanya also suggested that the government should tone down on infrastructure projects for now and concentrate on pressing issues such as health and education as well as the general welfare of employees and citizens.
He said that the local currency had lost value because of its limited use which had resulted in people dumping it in favour of the United States dollar.
Reports say that 75 to 80% of business transactions in Zimbabwe are now in United States dollars.
Gwanyanya said new measures introduced by the government which compel businesses to pay bills, taxes, duties and electricity bills in local currency will propel demand for the Zimbabwe dollar.
Because it will be in short supply since wholesale auctions and other measures introduced by the government have mopped out nearly $190 billion, use of the local currency is likely to improve and its value is likely to appreciate.
Gwanyanya says this is more so because the government wields 70% of the market power.
He says the impact of the new measures introduced by the government is likely to be felt after 25 June (this week) when companies make their quarterly payments.
These payments are likely to be around $400 billion yet excess liquidity is put at about $200 billion.
NOW that the Reserve Bank of Zimbabwe (RBZ) has kick-started the transition to a market-based exchange rate mechanism by injecting foreign currency in the interbank market, through the wholesale foreign currency auction system, and removing the limits on forex trading margins, the next step to achieving stability is to boost the Zimbabwe dollar (Zimdollar) demand.
What has been driving the massive Zimdollar sell-off is its limited use, and, therefore, low demand.
When the market exits a currency en masse, as is the case with the Zimdollar, it has the same effect as running the printing press.
That is why monetarists argue that inflation is everywhere and anywhere a monetary phenomenon. Given the current state of affairs, the Government, which wields more than 70 percent market power, is, more than ever, now expected to step in and aggressively push up demand for the Zimdollar through duties, taxes, levies and fees.
Concomitantly, we expect the current exchange rate and price volatility to subside.
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