Financial Economics and Financial Literacy

The central bank in any country must be responsible for maintaining the  value i.e. purchasing power of currencies, in Zimbabwe’s case this include the US dollar, bond note, rand etc. all the available currencies being used in the multiple currency regime. The value maintenance is important for a critical issue which require the trust of the citizens in the money in this case bond notes and all the currencies in the multiple currency basket .  Whilst the Reserve Bank of Zimbabwe (RBZ) does not have the capacity to maintain values of currencies in the multiple currency basket the mandate to maintain the value of the bond note rest entirely on them. In this case the RBZ intends to maintain the exchange rate between US dollars and bond notes at 1:1. This is much like a fixed exchange rate regime, but different in the case that in this scenario there is no basis but a pure proposition and decree that the currencies are equivalent. It doesn’t follow that the value of 1 bond note ...

Definition of incentive is basically something that induces a person to act. People are rational they make decisions by weighing costs and benefits, their decisions may change in response to incentives. The 5% incentive is not as attractive as RBZ makes it to appear, i.e. the moment a company or an individual gets the 5% they would prefer to exchange it right away into US dollars to preserve their purchasing power. A further analysis of this incentive is that its only given after the export has been made and payment has been made. Exporters are concerned with financing purchases and sales at least at working capital level. International trade is costly mainly finance mechanism should entail financing the process thereby facilitating, in this case if exporters are currently being paid after 30 days or 60 days by their customers and they are struggling working capital wise, they will still struggle and will only hope to get the 5% in 30 or 60 days’ time. The incentive system does not c...

Trade deficit in 2016 as of August is   US$ 1 821 341 980,00 based on figures available on the Zimstats website and l have projected the trade deficit to end the year at US$2 717 744 484,00. The monthly exports are averaging US$175 000 000,00 whilst imports are averaging US $400 000 000, 00 every month. If the government were honest to issue bond notes in December for instance in relation to exports the 5% will only amount to US 8 794 968,70 and probably at most US$ 10 000 000, 00 including the 5% earnings on remittances. Contrary to the realistic figures the government is planning to introduce at least 75 000 000,00 of bond notes upon the introduction which testifies bond notes are not going to be issued in relation to the amount of exports. I have projected 2016 exports to end at US$ 2 211 313 340,00 which will not change much in 2017 assuming they slightly increase in  2017 say to US $2 312 879,00, the amount of bo...

If there an injection of new demand into the economy a multiplier effect will result. An injection of new income into an economy leads to more spending. The increase in spending leads to an increase in national income and consumption greater than the initial amount spent. The multiplier effect refers to the increase in final income arising from any new injection of spending. It is important to remember that when income is spent, it becomes someone else’s income, and so on. I will use remittances in this instance to explain the multiplier effect in Zimbabwe. Recipients in Zimbabwe receive money from their relatives abroad, they in turn spend this money on goods and services locally. When they spend the money at the local tuck-shop in Kuwadzana for instance, this money becomes the tuck-shop owner’s income, remember they also sell at profit. Spending the money leads to more income which creates more income, i.e. if the tuck shop owner realise more income, they will also spend m...