Banning hard currences may erode confidence in economy – ZACCI

-The Zambia Association of Chamber of Commerce and Industry (ZACCI) has contended that the introduction of Statutory Instrument number 33 of 2012 has created a lot of anxiety in the business community and has the potential to erode investor confidence in the country.

ZACCI vice president-North Raj Karamchand says the new regulation also has the potential to affect the performance of the kwacha, the private sector and the overall economy both in the medium and long term.

Mr. Karamchand says the new regulation was a huge change in the business environment claiming that it was introduced without prior consultation, notice and nor grace period.

Mr. Karamchand was speaking at the Chief Executive Officers breakfast meeting organised by ZACCI at Pamodzi Hotel in Lusaka today.

Mr. Karamchand said Government through the Central Bank should ensure that the gains that the country has made in the recent past are not eroded by the introduction of abrupt measures and regulations.

He said Zambia should learn from the recent economic experiments and experience of some neighbouring countries like Zimbabwe, Tanzania and Malawi where stringent exchange regulations along with other economic measures have led to serious economic slowdown.

Mr. Karamchand said the liberty the country provided in having other currency accounts created a big goodwill which although was difficult to quantify would impact negatively on the country if it was done away with.

 

Mr. Karamchand said the country has scored a lot of successes in the business environment and that other countries have learnt a lot from Zambia.

 

“Firstly it is a common understanding among the business operators in the country irrespective of their size that exchange rate variations for the Zambian kwacha against major currencies particularly the dollar plays a key role in business decisions, particularly in setting the prices of final products, especially imported or locally produced goods with considerable imported inputs.

 

“It is against this background that many suppliers of goods and services with considerable imported inputs quote the price in US dollars and often charge the equivalent in Zambian Kwacha,” Mr. Karamchand said.

 

He said ZACCI and the business community appreciates the oblivious and many advantages of having a local vibrant currency taking a lead in the market and most aspects of the economy, but that it was important to look at how to achieve this in a holistic way through consultation with stakeholders.

 

He said it was also important to look at the pros and cons of prohibiting the use of the foreign currency transactions particularly the US dollar, which is a limitation which BoZ places on both local and foreign investors, on the country’s economic and industrial growth.

 

The ZACCI vice president-North explained that by having the US dollar and other foreign currencies, as the medium of business transactions in the economy, the Bank of Zambia (BoZ) may have less flexibility over the currency monetary policy.

 

Mr. Karamchand, however, stated that allowing foreign currency transactions in the market with reasonably prudent fiscal policy will and can bring stability and strength in the market.

 

He said this would keep the inflation low and positively contribute to several other areas of growth.

 

He recommended that Government through BoZ sets a grace period to allow businesses to adjust to the new regulations after which all new contracts and businesses can then be quoted in kwacha.

 

He also proposed that all existing contracts should be settled in the original currency in which they were booked or written and that banks should be allowed to accept foreign currency deposits until the grace period elapsed.

 

Mr. Karamchand further stated that there was also need to agree on how the applicable exchange rates will be arrived at in order to avoid disparities and exploitation, adding that the impact of the new regulation is varied across sectors.

 

Speaking at the same function, BoZ Director of Financial Markets Peter Banda clarified that the Central Bank had no intentions to introduce exchange controls and that BoZ had not banned foreign accounts in the country.

 

Mr. Banda, however, stated that the Central Bank decided to ban the use of foreign currency in domestic transactions in order to strengthen the country’s economy and protect the poor people who were the ones at the receiving end of the negative effects of dollarization.

He also stated that the standard practice has been that every country uses their local currency in domestic transactions, because dollarization renders the monetary policy infective.

Mr. Banda added that Government was open to discussions and dialogue on the matter.

But most CEOs of most business firms expressed concern and worry at the impact the new regulation will have on their business operations.

Most feared that the introduction of the Statutory Instrument number 33 which has banned the use of foreign currency in domestic transactions will result in them losing business.

But Finance Minister Alexander Chikwanda recently stated that Government’s decision to introduce Statutory Instrument number 33 that banned the use of foreign currency in domestic transactions was nonnegotiable.

Mr. Chikwanda stated that the Statutory Instrument had no ambiguities and that Government had no explanations to do on the matter as it was in the best interest of the people.

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