Financial Economics and Financial Literacy

Price stability contributes to achieving high level of economic activity and employment. Price is a key function in making investment and consumption decisions. Zimbabwe needs a monetary policy which addresses the key issues of price stability to enable economic recovery and growth. The economic solution lies in addressing the currency crisis. A change of monetary system such as implementing dollarization is a possible option to deal with macroeconomic instability and uncertainty.  The stability of inflation and interest rates result from the success of the monetary policy in maintaining price stability. Prices differ across countries mainly due to the differences in the cost of doing business. Zimbabwe has high cost of doing business which significantly influences the level of prices and makes the country’s exports uncompetitive. The country is importing most products therefore any movement in exchange rates such as the strengthening of the South African Rand influence the l...

                                                        Zimbabwe had a change of government in November 2017 which brought optimism that the economy might be guided on a recovery path following depression for several years since the turn of the millennium. Operation restore economy has not been launched and some people have already started to lose faith in the current administration’s ability to turn around the economy whilst some still believe the economy will be revived and grow again. There is no clear economic vision or policies which have been implemented yet by the government. The industry and firms which had closed have not reopened and the economy seems to be still in a dysfunctional state. It is the hope of Zimbabweans that they will one day have a vibrant economy, employment and the dilapidated infrastructure will be rebuilt. The pr...

Follow @ExpBusinessSA Dollarization is a situation where a country uses another currency officially or unofficially as legal tender. There are greater economic benefits to be realised by going for full official dollarization compared to semi-official or unofficial dollarization. Dollarization does not always involve the US dollar as the adopted currency, the euro can be adopted by non-EU members in the same way Zimbabwe can adopt the South African Rand through full official Randrisation. Official dollarization requires to surrender monetary policy to another country and often a country loses seigniorage and an independent monetary policy. If Zimbabwe chooses dollarization by adopting full official randrisation, the country will still export and earn US dollars and use the same US dollars for imports and international obligations. The only difference is that the rand will be the predominant or exclusive legal tender for local transactions. The official randrisation discussed here ...

The purpose of a central bank is to supply operational capital to the country’s banking sector. The primary purpose of a central bank is to promote the stability of a country’s financial system achieve price stability (low and stable inflation) and help manage economic fluctuations.Central banks communicate to the public through economic policy and inflation rate targeting has emerged as the leading framework for monetary policy.  The central bank can lend to the banking sector thereby ensuring that the banking system has sufficient liquidity for companies and individuals to borrow money because the availability of credit has a direct impact on business and consumer spending. It is also the role of the central bank to ensure that there is sufficient liquidity in the economy so that depositors can withdraw their savings. Zimbabwe is currently experiencing difficulties to obtain foreign currency to meet international payments obligations. The difficulties to ...

Tweet to @ExpBusinessSA Zimbabwean politicians and regulators have settled for unfocused and poorly designed steps to create a better financial system.  It should be noted that policy makers who repeatedly fail to protect the public are not accountable. The introduction of bond notes is a result of willful blindness on the part of politicians and regulators in Zimbabwe. The very people who should be protecting the public from financial crises are the ones perpetrating measures that create the very chaos regulators should be predicting and preventing. The banking crises of 2003-2004 where a lot of banks were closed and some went under curator-ship was repeated again in 2012-2013. It seems the regulators and the policy makers did not learn anything from the first banking crisis. When Gideon Gono assumed office as governor of the central bank in December 2003 inflation was 622,8% in January 2004, the financial crisis which followed until 2008 was all man-made. Whilst it was ...

The partisan politics model of public policy is based on the view that the ideological preferences of the ruling parties are significant drivers of the level of government spending. Political parties that favor redistribution increase government spending whilst parties that prefer the working of the market system reduce government spending. A combination of the preferences of voters and political parties shape policy outputs such as public spending (Wittman, 1983; Keech, 1995). The opposing school attributes that public spending is shaped by variable economic, technological and demographic imperatives ( Cusack , 1997). Partisan politics is at best marginal .  Majority of voters or parties’ grassroots support is made up of lower income groups and labor which prefer a large and active state. The upper income groups and capital prefer a minimized role of the state in shaping the market operations and outcomes. Zanu PF preferred a state heavily engaged in regulating th...

Zimbabweans are familiar with budget statement presented by the Minister of Finance in the parliament every year but unfortunately the public has never received detailed financial statements after expenditure. Zimbabweans usually know the amount which is allocated to certain ministries such as health, education social welfare but the public has never received financial reports detailing how the money was used. The lack of financial reporting means that the public has no information to make the government accountable. Accountability has been viewed since time immemorial as a channel for ascertaining the use of power by an individual or an organization that has been entrusted with the task of performing prescribed tasks (Premchand 1999).  Kautilya wrote a manual on bureaucracy before the Christian age, he observed that human nature was disposed to acquire public money for private gain. He wrote: “Just as it is impossible not to taste honey or poison that one may find at the tip ...