The Determinats Of Inflation In Zimbabwe Under The Multi-Currency System

After the hyperinflation that recorded over 200 000% inflation rate especially for the years 2007 and 2008,the Reserve Bank of Zimbabwe suspended the flow of the Zimbabwe dollar and introduced a multi-currency system.This initiative allows several major world currencies to be used as legal tenders simultaneously ever since January 2009,aiming to restore the stability of prices.However inflation still exists even under such a new system,with an annual rate of 3%.Based on monthly data from the year 2009 to 2015,this thesis introduced time-series econometric model and examined the drivers behind inflation in Zimbabwe after the introduction of the multi-currency system.It is found that money supply,exchange rate,interest rates and imports are the major determinants of inflation in Zimbabwe after the multi-currency system was introduced.The findings suggest the way forward to the government of Zimbabwe,in terms of inflation control.Since exchange rates are out of the control of the government,it is suggested that when the US dollar appreciates the government has to introduce legislation that controls the volume of imports by limiting the amount of imports coming into the country.On imports Zimbabwe has to reduce its dependence on foreign imports by restoring its manufacturing sector that was damaged during the hyperinflation and economic melt-down period that ended in 2009.On money supply the government has to look into the prospects of reintroducing the Zimbabwe dollar so that the government can print its own currency that will enable the control of money supply.On the interest rates the government should craft favorable legislation for the banking sector such as reducing regulations on how banks operate so that the country's commercial banks can lend money at reasonable rates and operate effectively.