A BLOCKCHAIN-BASED FRAMEWORK FOR ENHANCING MONETARY POLICY EFFECTIVENESS THROUGH TRANSPARENT FOREIGN EXCHANGE TRANSACTION MANAGEMENT IN ZAMBIA

Abstract

The effectiveness of monetary policy in Zambia is undermined by foreign exchange (FX) market inefficiencies, including lack of transparency, fragmented monitoring mechanisms, and limited regulatory enforcement. These shortcomings contribute to inflation volatility and weaken the capacity of the Bank of Zambia to uphold price stability and economic control. This research proposes a blockchain-based framework that leverages Hyperledger Fabric to create a transparent, decentralized, and tamperresistant ecosystem for managing FX transactions across authorized financial institutions including the Bank of Zambia, commercial banks, and forex bureaus. Using Design Science Research Methodology (DSRM), a permissioned blockchain prototype was developed and tested to demonstrate how smart contracts can enforce daily FX transaction limits, detect regulatory violations across institutions, and ensure real-time compliance monitoring. The system architecture includes peer nodes, smart contracts, digital identities, and an immutable ledger shared across participating institutions, enabling automated policy enforcement and auditability. Evaluation results showed that the blockchain system effectively enforces FX limits, prevents multiple transactions across institutions using the same client ID, and provides regulators with real-time data access. BOZ’s observer role within the network supports regulatory oversight through dashboard analytics and exportable compliance reports. The system’s performance metrics—low latency, high throughput, and robust access control—highlight its feasibility for enhancing transparency and control in FX markets. This study contributes to the broader discourse on the application of blockchain in financial regulation, offering a scalable and secure framework for improving monetary policy execution in developing economies. It provides actionable insights for policymakers, central banks, and financial institutions aiming to modernize their FX oversight infrastructure using distributed ledger technologies