EMPIRICAL EVALUATION OF THE FOREIGN EXCHANGE MARKET INTERVENTIONS IN ZIMBABWE PRE TO POST DOLLARIZATION (1985-2016)
Abstract
The study empirically evaluated the Reserve Bank of Zimbabwe (RBZ) foreign exchange interventions in for the period pre and post dollarization. There have been different forms and motives of intervention used by the RBZ in line with the exchange rate system and fundamental macroeconomic problems at each given point in time. There has been sterilised and unsterilized intervention together with direct and indirect interventions. Success ranges from the fixed exchange rate system when the main reason for intervention was to defend the fixed parity hence success was mainly imminent for the period 1985 to 1995 when the foreign exchange reserves were more than enough but the reserves started to be depleted towards 2000 and hence led to the move towards the flexible exchange rate system from the Auction system of 2003 to the actual flexible exchange rate system leading to the abandonment of the local currency as it continued to lose value relative to foreign currencies. Intervention became indirect and fairly successful from 2008 after the adoption of the multicurrency system. Reasons behind unsuccessful intervention being depletion of foreign currency reserves due to persistent Balance of Payments deficits, declining levels of productivity, vulnerability to natural disasters such as droughts, rampant corruption, policy inconsistency and incredibility. However if the above fundamental issues are not addressed, there is no need for the country to return its own currency since it will never stand against other foreign currencies hence recommend the need to continue with the multicurrency exchange rate regime.
JEL: F31, O24, P24, E52
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DOI: http://dx.doi.org/10.46827/ejefr.v0i0.128
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