‘Currency floating brings stability’
The recent decision by the monetary authorities to float the currency and let the value be determined by market forces has generated some form of stability, a renowned economist John Robertson has said.
The Reserve Bank of Zimbabwe (RBZ) recently moved away from the fixed 1:1 exchange rate between the US dollar and the bond note, which had caused foreign exchange price distortions in the economy.
The new policy sets a robust market-based framework for determination of the exchange rate, facilitating financial sector stability at the same time containing inflationary pressures and confidence building.
Presenting his lecture at the British Council on Wednesday last week, Mr Robertson said the new policy has introduced a steadiness that every genuine economic player hopes for.
“Government has decided to let market forces decide the exchange rate for what is almost a new currency, our virtual RTGS dollars. The number of people who want to buy US dollars seems to more-or-less match the number of people who have US dollars for sale, so the price has not moved very much.
“The Reserve Bank has had to increase the supply of US dollars by arranging a few loans and it has tried to reduce the demand by making the buyers meet certain conditions, but these have generated at least some of the stability that every genuine business person wants to see,” said Mr Robertson.
He said the stability is a vital cog in inspiring confidence which will, in turn, attract investors. He was quick to point out that the stability is necessary for an economy as it makes provision for economic growth which is critical in job creation and ultimately poverty alleviation.
He, however, pointed out the need to direct more effort and hard work to realise more stability.
“Stability is an important objective from so many points of view that if it can be reached, it will be a very worthy achievement. We still have a lot to do to improve it, but stable conditions encourage investment and investment is the most important prerequisite for job creation.
Price stability will encourage business expansion, the efforts needed to establish new markets, the resourcefulness needed to design better products and the courage needed to venture into new areas of business activity. And job creation will alleviate poverty,” he said.
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