Zimbabwe needs to set up the right incentives and restore confidence for citizens to be willing to transact, if it is to introduce a local currency, the United Nations Development Programme (UNDP) has said.
FIDELITY MHLANGA/ELIZABETH DUMBRENI
UNDP senior economic advisor Amarakoon Bandara told delegates attending the Zimbabwe National Chamber of Commerce that the country needed to reduce price uncertainty by way of insuring against inflation and reinforcing independence at the central bank, thereby strengthening prudential regulation.
“For example, people like to keep cars. I have seen that even in front of smaller houses people park cars and I was asking why people were doing that. I thought the house was a poor man’s house. The reason is they won’t keep money in the bank because the trust is not there yet,” Bandara said.
He said it was fundamental to establish structural reforms, maintaining policy consistency and credibility as well as making sure that both market forces and public interventions reinforced each other if authorities were to introduce the local currency.
The country dollarised in 2009 in response to the hyperinflationary environment that had decimated the local currency. The decommissioning of the local unit began on June 15 and runs up to September 30. Zimbabwe slipped into hyperinflation in 2007, a situation attributed to quasi-fiscal activities that necessitated excessive printing of money.
Bandara said adopting a common currency would eliminate transaction costs, stimulate market integration, enhance price transparency and prompt financial stability and less uncertainty.
He added that countries using common currency faced an inability to use the exchange rate as a tool of external adjustment, thereby losing independent monetary policy.
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The role of the central bank, according to Bandara, was to withdraw liquidity from strong banks to provide support for weaker banks and monitor external lines of credit and reserve funds from tax revenues.
