Africa might not be the best place that can boast of financial innovations but Mr Collet Ndlovu, who is a Zimbabwean financial economist managed to develop an innovative currency confidence index in order to assist authorities in the effective management of inflation and forex volatilities.
Ndlovu is an award-winning economist who is widely known in Africa for his innovations. “The Ndlovu Currency Confidence Index” (NCX) is aimed at resolving the relationship between the level of future inflation and the external value of the currency. Ndlovu is sure that by confidence monetary authorities will expand confidence among people and trust will be restored as well.
Everyone who knows the basics of Forex trading can understand clearly what this innovation would mean for citizens. Having a good monetary policy and credible authorities is vital in this field.
Ndlovu also worked in South Africa for the Reserve Bank where he was merited for his work and received various awards. He believes that the NCX Index should be adopted as a measure of confidence around the world.
He noted that at the beginning, the index would be used in the Zimbabwean model and only after it will be tested globally, however countries like Kenya, Nigeria, South Africa are considered to be first in a row.
He declared that currency confidence is a powerful tool for both price and currency stability. Policymakers will also gain an insight into how their work links with the expectations of the markets.
Ndlovu believes that confidence is a very important asset and this is possible if the people believe that the monetary authorities will actually execute their stated objectives like price and currency stability.
The calculation of the NCX Index is not very hard and does not require additional complications.
What innovations have taken place in Zimbabwe recently?
Most recently, The Central Bank of the Republic of Zimbabwe resumed operation of the interbank currency market, The EastAfrican reported on June 28.
According to the agency, Zimbabwe, a year after reinvesting its own currency, for the second time in ten years, is approaching dollarization.
Last week, retailers were required to show prices in both US dollars and Zimbabwean dollars as part of a policy effort.
Enterprises are already on the way to abandon the local currency, preferring the US dollar because as you know it is the stablest currency in the world.
The government also began to partially pay salaries to government employees in foreign currencies to reassure unions that were demanding a return to the US dollar due to the instability of the local currency.
On June 24, 2019, the country stopped the multicurrency system in which the US dollar became the preferred currency. The Zimbabwean dollar was rapidly losing value in the parallel market, and by Wednesday $1 brought ZW $90.
Zimbabwe then launched currency reforms designed to put the local dollar on a solid footing, but economists say the experiment failed and a return to the US dollar is now inevitable.
An auction system was opened for foreign currency, allowing market forces to determine the exchange rate. Then the official exchange rate overnight rose from artificial $1:25 to $1:57