Analysis On The Promotion Of The Use Of Local Currency And Competitiveness - National Competitiveness Commission

Analysis On The Promotion Of The Use Of Local Currency And Competitiveness

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The National Competitiveness Commission (NCC) is mandated to enable the creation of a competitive environment for Zimbabwean businesses through the development, coordination, and implementation of key policy improvements. Further, the Commission is expected to analyse and closely monitor the macro-economic policies that have an impact on national competitiveness and propose areas of intervention thereof. This paper elucidates on the nexus between the use of the local currency and national competitiveness, in line with Treasury’s Press Statement on the measures to promote market adoption and acceptance of the local currency (Zimbabwe Gold).

Zimbabwe adopted the use of the multiple currency system dominated by the American dollar since 2009 when the local currency depreciated in value due to hyperinflation. However, there is a growing recognition of the benefits associated with conducting domestic transactions using the local currency as it promotes national competitiveness.

Merits of Settling Transactions in Local Currency

Stability and Control

Using local currency gives the Government, through the Central Bank, more control over monetary policy, which promotes effective management of economic aggregates and allowing for greater stability in the economy. This stability creates a conducive environment for business growth and investment. Furthermore, the enhanced autonomy enables Government to respond effectively to economic challenges and tailor policies to specific domestic needs, thereby minimising the effect of economic ills such as liquidity crisis and thus promote competitiveness.

Reduced Relative Transaction Costs in Local Currency Terms

Conducting transactions in local currency reduces the need for currency conversion, which results in lower transaction costs for businesses. Use of a relatively weaker local currency to settle transactions help to lower costs of production which promotes competitiveness of locally produced goods especially on the export market. Reliance on the use of stronger currencies such as the American dollar to settle local transactions would diminish the country`s export competitiveness.

Reduced Exchange Rate Risk

When conducting business transactions in local currency, companies avoid exchange rate risks associated with fluctuating foreign exchange rates and liquidity challenges. This stability provides certainty in pricing and budgeting for businesses.

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Analysis On The Promotion Of The Use Of Local Currency And Competitiveness

 



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