Forex auction system offers hope for currency stability – CZI

THE country’s largest industrial body, Confederation of Zimbabwe Industries (CZI) expects the introduction of the forex auction system, which replaced the fixed exchange rate, to yield the desired currency stability and curb depreciation of the Zimbabwean dollar.

The auction system began this week Tuesday and set the rate at 57.3 to the US-dollar after market players had complained about the fixed 1:25 exchange rate, which was blamed for fueling wild parallel market rates of nearly 1:100. The exchange rate volatility had forced price escalation resulting in weakening aggregate demand and consumer spending got eroded by inflation.

In its response paper on the evaluation of the recently announced fiscal and monetary policies, CZI said it believes the new auction system was ideal for the economy.

“The introduction of the auction system to replace the fixed exchange rate regime offers an opportunity for the stabilisation of the Zimbabwe dollar and the elimination of the major macro-economic distortion in the economy – namely the exchange rate,” said CZI.

The industry body noted that while the auction system was once tried in 2004-2005 and failed, there were certain factors behind its failure at that time, which should not be allowed to impede progress this time around.

“We know why it failed, but will we learn from history and avoid the same mistakes. As we all know the key success factors are: allow the auction to be a true auction and maintain iron clad fiscal and monetary discipline,” reads the position paper that was issued today.

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