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The Forex market remains the most liquid and biggest financial market in the world today and its importance therefore to the Zambian Economy is therefore of immense importance.
Forex market has lot of purposes, above most markets such as the equity market, which focuses on helping established companies to raise capital for their businesses to form a large number of people. Forex market is so important that it can effect the economy of a Nation as a whole.
The Forex market can caters to the currency needs of travelers, importers, and exporters to and from Zambia. An increase in demand for the Kwacha in the foreign exchange market can boost the economy of the country due to simple demand and supply rules. Increase in demand for the Kwacha will cause a form of scarcity, especially when the demand is more than the supply. The situation will automatically push up the value of the Kwacha against other major currencies, like Great Britain Pounds (GBP), United States Dollars (USD), European Union Euro (EUR) and so on.
Recently The Bank of Zambia stated the overall worry of the depreciation of the Kwacha and faceted this to 3 main causes or factors contributing to this current state
The world bank recently cut the Gross domestic product forecast of Zambia from 3.5 to 3.3percent this means that the confidence and sentiment of consumers ,business and investors in Zambia is predicated by the world bank to decline in Zambia ,thus indicating a negative forecast growth in the Economy.
Another reason that was given was despite the successful circulation of K1.5Billion in treasury bills ,the treasury bill auction only amounted to K290million in total Bids ,this means the following as treasury bill auctions are a method used to assist with Managing a countrys debt as a tool ,the price of these treasury bills is determined by supply and demand ,the intrest rate on these treasury bills increase during economic expansion and decrease during Economic recession or decline ,once more this indicates a negative sentiment .
Although the current outlook and perspective seems negative ,it is not uncommon for an emerging developing economy such as Zambia to Experience the current prevailing conditions .
The measures that can be taken to to improve this situation are the following proposed methods
1) Proceeds from the sale of Zambias Treasury bills can be brought back into Zambia thus appreciating the Kwacha ,another way would be not to buy any more dollar assets at present
2) Reducing Inflation ,through the bank of Zambia and Ministry of Finance through tightening fiscal and monetary policies ,including supply side policies
In Summary to create a stronger Zambian Currency we need to go back to the Economic Basics,such as low inflation,increased productivity growth and Economic Political stability .