LUSAKA, June 15 (Xinhua) -- The central bank in Zambia has clarified that the ban on the pricing of goods and services in foreign currency does not mean that it is in the process of reintroducing foreign exchange controls, according to a statement released on Friday.
Last week, the Ministry of Finance announced a ban on the use of the U.S. dollar in any business transaction, saying all business transactions will have to be conducted in the local currency kwacha.
A statement released by the bank's Public Relations Department said the move will not result in the reintroduction of foreign exchange controls, adding that the foreign exchange regime will remain liberal.
The statement said trading of foreign currency will continue to be undertaken through commercial banks and bureau de change.
"The measures introduced are aimed at reinforcing the use of the Kwacha as legal tender in the economy and encourage financial innovation in the financial system, such as development of hedging instruments to manage exchange rate risk," the statement said.
Zambia initially banned the use of the U. S. dollar in conducting business transactions in 2003, following a rise in businesses using the green buck for their transactions.
The Zambian economy experienced distortions in the mid-1990s, following the liberalization of the country's economy in general and the financial sector in particular. One of the distortions was in currency management, the statement said. According to the statement, there was once excessive demand arising in part from the need to settle purely domestic transactions in foreign currency, a situation that forced business entities to start quoting and demanding payment in foreign currency.
Stakeholders have since welcomed the government's move to ban the use of foreign currency in any business transactions.
The Private Sector Development Association (PSDA), an association representing private sector, has said the move will strengthen the local currency which has depreciated considerably in recent months, while the Zambia Consumers Association (ZACA) has said the move will create price stability on the market.