THE policy problems related to our monetary reforms are determined by the approach taken for those reforms. Since 2019, two alternative strategies were much debated.

By Lemuel Batanai, Our Reader

The first strategy was to scrap the United States dollar together with the whole multi-currency system and replace it with the Zimbabwe dollar (ZWL).

The other option was to adopt the United States dollar and the Zimdollar as the official currencies of the country with each of these currencies working as both supplement and compliment of the other. The latter of these strategies is obviously quite dependent on the pricing system as well as the amounts being transacted.

The government opted for the former strategy. The move was to boost local trade and stifle imports of the least essential commodities. Another reason was to instil confidence within the economy amid a huge deficit in the trade balance and a massive shortage of the local currency and the green-back in the country. Simply put, there is a huge cash crisis in the country.

The shortage of cash in general throughout the country would mean that the government would have to pay its civil-service wage bill with the local currency electronically and would afford the liberty of using the forex reserves for the importation of the essentials such as fuel. This saw booms in the plastic and mobile money markets.

However, the demand for cash escalated as commodities became more expensive when trading electronically as compared to using actual cash and forex. Businesses even began to reject electronic forms of payment, often charging high premiums on such transactions.

When the COVID-19 pandemic came around with lockdowns in early 2020, the government legalised the use of the US dollar in all local transactions. It was already understood that businesses and individuals always held on to forex largely for precautionary and speculative reasons even when the use of US dollar was under ban. By this time, nevertheless, the rate at which the Zimbabwe dollar traded with the United States dollar was pegged at an official rate of US$1:25.

The parallel market, however, was trading at almost double that rate and was and still is more lucrative for business.

Efforts should always be made to ensure that the local currency is more stable and competitive in relation to other currencies which trade both locally and regionally such as the US dollar and the South African rand.

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