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#Monday Blues:Currency Crackdown Unintentionally Drives Dollarization

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Zimbabwe’s crackdown by Monetary authorities to support the local currency and fight inflation has increased the use of US dollars in the economy, according to the country’s oldest brokerage and Economic commentators hence driving Dollarization at a faster pace.The Reserve Bank of Zimbabwe Governor Dr John Panonetsa Mangudya adopted a series of measures since May including raising the benchmark interest rate to 200%, introducing gold coins, imposing taxes on capital markets and halting payments to government contractors and suppliers to try reduce money supply.

Dr Mangudya’s actions dried up excess liquidity and succeeded in bringing the official local currency rate in line with the parallel rate. However some analysts believe inspite of the success, this has also indeed fast paced Dollarization unintentionally.

“Ironically the authorities’ clampdown on Zimbabwe dollar payments created such a squeeze that it has had the unintended consequence of driving dollarization at a faster pace,” Imara Asset Management Chief Executive Officer John Legat said in the Harare-based company’s latest quarterly investment notes to clients.

Zimbabwean Banks are now offering US dollar loans and listed companies carry out more transactions in the greenback, as they reel from a shortage of Zimbabwe dollars.

“Even government is increasingly using US dollars for their own payments,” he said.

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