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Zimdollar tormented by trust issues

by Staff reporter
23 Oct 2023 at 06:28hrs | Views
FBC Securities, a leading securities firm, has highlighted that confidence in the local currency in Zimbabwe remains low due to historical volatility and value depreciation. Zimbabwe has faced currency depreciation and high inflation in the past, eroding savings and income.

The lack of trust in the local currency has led to exchange rate instability, capital flight, and unsustainable inflation. According to FBC Securities' third-quarter report, promoting the use of the local currency has been challenging because economic actors still prefer the US dollar for transactions and as a store of value.

The report notes that while exchange rate stability has improved and official inflation figures are decreasing, confidence in the local currency remains low due to past experiences of volatility and value erosion. The stability of the local currency is still fragile and depends on the government's ability to control money supply, build trust, and encourage the use of the local currency.

To bolster the local currency, FBC Securities suggests implementing a combination of measures to increase the supply of foreign currency while reducing demand for the US dollar and boosting demand for the local currency.

Although the government has been promoting the Zimbabwe dollar, the US dollar still plays a dominant role in the country's economy. Foreign currency-denominated loans make up around 90% of total bank loans, and over 80% of local transactions are conducted in US dollars.

FBC Securities anticipates that the focus will be on the future of Zimbabwe's currency. Annual inflation has significantly slowed down with the adoption of a calculation method that considers US dollar transactions. In September, annual inflation dropped to 18.4% from 77% in August.

The firm expects the pressure on the local currency to remain high, particularly in the second half of the year, coinciding with increased fiscal spending to support the summer agricultural season and bonus payments.

Additionally, the report predicts that the performance of the stock market will be influenced by local liquidity conditions and concerns about value preservation due to current currency dynamics. It foresees a growing appetite for alternative investments as investors evaluate local economic conditions.

Source - newsday