An Analysis Of Monetary Reforms And Inflation Dynamics In A Multicurrency Economy Of Zimbabwe

This study is an analysis of the inflation dynamics in Zimbabwe under the multicurrency system using monthly data from January 2010 to April 2018.The analysis of the dynamics of inflation includes the main determinants of inflationary trends and the potential effects on the economy of Zimbabwe.The analysis in this study provides an understanding of the contribution of external and internal factors to the inflation dynamics.The main findings of the study concluded that the effects of the shocks to the US dollar and the South African rand exchange rate,expected inflation which is defined as lag of inflation,money supply,food prices and the South African inflation have been noted to be the important factors that determined the inflation dynamics in the country.The study also covered the period of negative inflation in the country and the negative inflation is explained by supply factors that implies that this negative inflation does not have a direct harm to the economic growth of the country.This negative inflation trend was noted to be from external factors,a recommendation on this will be to increase productivity and improve the competitiveness for commodities produced in the country through reducing cost of production.Although the inflation moved out of the negative inflation to positive in the period covered by the study,a recommendation to the government of Zimbabwe is to put more effort in pursuing policies that will improve the ease of doing business in order to increase productivity in business.It is also important for the government to make policies that will attract Foreign Direct Investment especially in the productive sectors that produce commodities for export.Food prices that included imported and domestic food items is also another variable that determined the inflation dynamics of the country and this can be resolved by the increase in food production and increase in productivity.The authorities have to priorities the food producing sector and also increase productivity in the county to reduce importing.On the same note productivity in the country will reduce importation of goods and the effect of imported inflation as it is also noted that the South African inflation is suggested to have influenced inflation in Zimbabwe.The government of Zimbabwe is recommended to reintroduce the Zimbabwe dollar that was suspended after the country faced a period of hyperinflation and economic crisis in favor of the adoption of the multicurrency.The reintroduction of the Zimbabwe dollar will restore the country's monetary policy autonomy that will enable the authorities to control money supply and it will enable the authorities to be able to influence the inflation of the country.