Andrew
Business Reporter
The market believes Government’s recent decision to create a predictable planning environment by entrenching the multicurrency system, which makes both the US dollar and local currency legal tender for all local transactions during the five-year period of the National Development Strategy 1 (NDS1), is positive and would help promote confidence.
Statutory Instrument 118A of 2022 to guarantee the multicurrency system to December 2025 has since been gazetted.
Among other measures, the regulations empower registered lenders, banks or any financial institution that lends foreign currency to receive repayment of the loan or credit in the same currency.
It also promotes the willing-buyer, willing-seller exchange rate in pegging prices.
Confederation of Zimbabwe Industries (CZI) president Mr Kurai Matsheza said the intervention was “the only optimal transitional arrangement”.
“Thus, use of the US dollar as legal tender is a position we accept,” he said.
He, however, said the only concern are limits on exchange rate between USD and ZW$ for pricing of goods and services.
“Our cardinal belief and position is that free markets are the best arbiter for setting prices between economic agents for goods and services.”
Finance and Economic Development Minister Professor Mthuli Ncube last week said continued speculation that Government would blindside the market by discontinuing the multi-currency system had been causing challenges. The interbank market exchange rate is now going to be determined by banks on a willing-buyer, willing-seller basis and would be the ruling rate for all economic transactions.
Mr Enock Rukarwa, a research & investment consultant at FBC Securities, said dynamics of the local operating environment remain relatively complex, especially because of continued inflationary pressures and exchange rate volatility.
He noted that a multi-currency system remains the best model in the short to medium term.
“The biggest challenge confronting our multi-currency system is the mismatch in foreign currency pricing between the Government and the free-market enterprise, culminating into thin foreign currency liquidity on the interbank market.
“Convergence of the willing-buyer, willing-seller rate and the alternative market rate is of paramount importance in softening obtaining price distortions and USD inclination in the economy,” he said.
Economist Mr Victor Bhoroma said the new law might serve to assure investors.
“It will also provide assurances to the banking sector who would want to continue lending in foreign currency to the business sector,” he said.
Treasury believes the confidence deficit among economic agents as a result of the past hyperinflation experiences had resulted in increased demand for US dollars as a store of value.
NDS1 is Government’s five-year economic masterplan through to 2025, which is premised on creating a prosperous society in keeping with an upper middle-income society.
Tinaye Agere
Online Reporter