RBZ pumps brakes on mandatory ZiG fuel sales, prioritises market acceptance

The Reserve Bank of Zimbabwe (RBZ) has opted against forcing fuel dealers to transact in the newly-introduced Zimbabwe Gold (ZiG) currency despite many seeing it as a key enabler to widespread acceptance of the newly introduced local unit.

The central bank has repeatedly brushed off calls to sell fuel in ZiG as well as making foreign currency available for other needs such as payment of rent.

This decision has sparked debate, with some players questioning the effectiveness of the ZiG if its use remains optional in critical sectors like fuel. Market watchers have insisted ZiG will only find its space in the economy if it is used to buy critical services, including fuel and not to be applied selectively.

While the RBZ introduced ZiG in April 2024 as a potential solution to currency instability and high levels of inflation, critics argued that widespread acceptance and sustainability hinged on mandatory use of the local currency for critical purchases.

Zimbabwe currently operates under a multi-currency system expected to last until 2030 and the currency basket is dominated by the US dollar.

The multi-currency regime allows for transactions in various currencies, but unlike other sectors where pricing and accepting a customer’s chosen transactional currency is mandatory, fuel dealers are not compelled to trade in ZiG by law.

Instead of imposing a blanket mandatory use, the RBZ is adamantly relying on “moral suasion” adding the approaching Quarterly Payment Dates (QPDs) will incentivise fuel dealers to accept the ZiG.

During an interview on Star FM on Thursday, Governor Dr John Mushayavanhu, addressed repeated calls for mandatory ZiG use in fuel sales. He emphasised the multi-currency system, stating; “There is nothing stopping a fuel dealer selling their fuel partly in ZiG and partly in any other currency.”

Dr Mushayavanhu highlighted the impending tax obligations, stating; “If the fuel dealer is not selling fuel in ZiG, they will find themselves in a situation where they are looking for ZiG come June/July, because they are also a taxpayer and they are supposed to pay 50 percent of taxes in ZiG. So, if they are not selling their products in ZiG, where are they going to get the ZiG?” said Dr Mushayavanhu.

He warned that come tax season, the ZiG rate might strengthen, potentially causing financial losses for non-compliant fuel dealers.

This cautious approach has drawn mixed reactions. Some see it as the “death of ZiG,” while others appreciate the conservative strategy.

One caller said consumers were more concerned about their immediate needs, the ability to buy fuel now, than what happens to fuel dealers in June come QPD time.

Economic analyst, Kuda Mugova, believes the RBZ wants “ZiG to first gain acceptance before pushing its use in sensitive sectors.”

He warns that any delay in foreign exchange settlements by fuel dealers could lead to fuel shortages, similar to the ones experienced in January 2019.

Mugova emphasised the need for a market-driven approach, stating; “The monetary authorities must avoid trying to fool the markets… They should rather just let the market freely determine the exchange rate.” He draws a parallel to the passport situation, suggesting that an accessible commodity, readily available, would be preferable to a cheaper, yet inaccessible one.

Some market watchers say the success of ZiG hinges on its widespread acceptance and the fuel sector holds significant influence in this regard.

“Maybe the central bank is looking at the bigger picture and probably feel it is better placed to stabilise the exchange rate associated with people demanding foreign currency for fuel and rent, than deal with fuel shortages,” said Walter Mandeya of Trigrams Investments.

“Whether the RBZ’s cautious approach will ultimately lead to the desired level of ZiG adoption remains to be seen.”

The ZiG, which was launched trading at 13.56 per dollar was quoted at 13.41 to the dollar yesterday, according to official figures.

Parallel market rates, however, range from 15 to 19 per dollar, with the wide spread indicating an illiquid market. This comes against a background of 65 people having appeared in court for allegedly buying and selling foreign currency on the streets.

Mandeya said the RBZ was in a policy and perception dilemma.

He said the “Structured Currency” and the new Governor were billed as the solution to our currency crisis, but the reality on the ground is that currency problems, are just a symptom of “deeper structural weaknesses in our economy”.

“It will take much more than a change of the guard at the RBZ or a change of the currency to address the weak fundamentals that limit our ability to increase our economic productivity and in turn our exports.

“ Until then, the RBZ is correct to take the cautious policy of not directing how fuel importers charge for their service and products, least we lapse back into fuel shortages.

“ As for rentals, unfortunately, the RBZ and the multicurrency system will have to coexist with the black market and find a compromise that does not criminalise a legitimate need by landlords to preserve the value of their earnings,” he said.

In any case, according to financial economist, Malone Gwadu, retail based transactions such as the demand for fuel by individuals “ aren’t huge movers on the exchange rate although they are high on their volumes”.

“They can quickly be eliminated by buttressing the new structured currency with liquid Bureau De Changes across the market.

“ This will ensure uniform bidding and selling of the currency in an objective and transparent manner. BDCs, if capacitated and well-structured have the capacity to meet such daily needs of the retail consuming public.”-ebusinessweekly