Market skeptical of ZiG despite Govt push for adoption

The Zimbabwean government and monetary authorities are doubling down on efforts to bolster confidence and usage of the new national currency, the ZiG. However, the market remains unconvinced due to the currency’s depreciation on the black market.

On Tuesday, the Ministry of Finance announced a series of measures aimed at promoting widespread adoption of the ZiG. These measures include a directive mandating all government agencies, departments, and the private sector to accept ZiG for all transactions, effective immediately.

This directive comes amidst a growing disparity between the official exchange rate and the black market rate.

The official rate has remained largely stagnant since its initial launch, failing to keep pace with the black market’s fluctuations.

The exchange rate stood at ZiG13.5326 to US$1 as reflected on the RBZ website yesterday. On the other hand, street dealers were asking for anything between ZiG15 and ZiG20 per US$1.

Analysts like Victor Bhoroma argue that the government’s approach lacks teeth. He points out that a simple directive, without addressing the underlying causes of currency depreciation (such as excessive money printing), is unlikely to be sustainable.

“A mere statement without the necessary reforms on what leads to local currency depreciation is unsustainable.“Market sentiment changes if the right things are done, especially on money printing,” he said. Bhoroma emphasizes the need for broader reforms to address market sentiment.

He highlights the negative impact on formal businesses forced to comply with the official rate while their suppliers demand USD payments.

This situation disrupts production processes and strengthens the already dominant black market, fueled by factors like smuggled imports and non-compliance with regulations.

He noted that the monetary policy now speaks to a very small fraction of the local economy, and its negative impact is borne by formal players who have to follow the law.

“Already, suppliers are demanding US dollar payments only; this means production processes have been slightly disrupted.“It strengthens the already strong position of low-cost merchandise, USD cash payments to suppliers, bulk orders, smuggled imports, low operating costs, and non-compliance with city laws,” said Bhoroma.

Equity Axis, a financial research firm, adds another layer of concern. They point to the significant volume of undeclared goods entering the country, further undermining the viability of traditional retailers who rely on the formal market.Furthermore, the lack of a user-friendly digital platform for currency conversion between ZiG and other currencies is seen as a major stumbling block.

Equity Axis argues that without seamless electronic exchange options, the ZiG will struggle to compete in a multi-currency environment.

“If both currencies or the entire basket cannot be converted from one currency to the other electronically via online platforms using one’s bank or mobile money service, it surely cannot survive in a multicurrency regime, or at least even if it survives, the black market will continue to thrive.

“More so, the strain on the ZiG will be catalysed by economic fundamentals, which we consider to still be very weak,” reads the Equity Axis review.

Deputy Minister Mnangagwa acknowledges the critical role of public confidence in the ZiG’s success. He emphasizes the government’s commitment to consistent, responsible policies.

He also highlights plans to leverage existing mobile money platforms like EcoCash for small-scale USD conversions, aiming to reduce reliance on black market money changers.

What Government has been doing is that we have reached out to our mobile network operators,” Deputy Minister Mnangagwa added.

“We requested two things from them (Econet, Netone and Telecel) that firstly, we have people who want to transact in small amounts. Sometimes you just want to see your US$20 or US$50 in your pocket, can we not have a Netcash platform, a bureau-de-change that can allow exchange from ZiG to US dollar and from US dollar to ZiG?

“That is currently under discussion and you should see that happening in the next few weeks.

“This is important because it will remove the need for those who want to use small amounts of USD for their day to day use.”

He said agents of mobile money platforms such as Ecocash would be reinstated, allowing people to withdraw or deposit physical ZiG and US dollar to foster financial inclusion.-ebusinessweekly