RBZ urged to address bottlenecks that limit local currency use

CONSUMER watch groups and business leaders have raised concerns over the knowledge gap regarding the new ZiG currency, notably in remote areas and the widening gap between the official exchange rate and the rates applied in various supermarkets.

In its submissions ahead of the mid-term monetary policy review, the Consumer Council of Zimbabwe (CCZ) called for the Reserve Bank of Zimbabwe (RBZ) to initiate aggressive consumer education and awareness programmes.

The CCZ said the economy had witnessed significant positive developments since the launch of the gold-backed ZiG in April, citing the stabilisation of the exchange rate, price stabilisation of most basic goods and improved availability and accessibility of ZiG notes and coins.

However, CCZ chief executive officer, Mrs Rosemary Mpofu-Chikarakara, said they had observed drawbacks that may pose a threat to the stability of both the ZiG currency and the price levels. She stressed that confidence in the new currency is still not adequate.

“Efforts still need to be directed towards closing the knowledge gap, especially in the informal sector, as well as the country’s remote areas regarding the new currency partly due to previous experiences with changing currencies,” she said.

“Consumers expect the Central Bank to review and invest in aggressive consumer education and awareness programmes leveraging on the influence of consumer organisations groups like the Consumer Council of Zimbabwe.

“Policy consistency, accountability and transparency are key to instilling confidence in the public to earn a buy-in. There is a widening gap between the official exchange rate and the rates being applied in various supermarkets,” said Mrs Mpofu-Chikarakara.

“The informal market rates now range from US$1:14,7 to 23. This could be a signal of deficiency of confidence in the market mostly by traders or unwarranted panic by some individuals, which may destabilise the currency and push inflation.

“The market needs continuous monitoring and there is a need to give the consumer as much information as is necessary to empower them.”

She said the mid-term MPS is expected to introduce some measures, which will ensure that the official rate and the supermarket rates are narrowed through the available policy instruments and moral suasion where possible.

“The knowledge gap about the new currency is still obtaining in the market, particularly in remote areas of the country. This can be witnessed by the lack of confidence of the ZiG when transacting in those remote areas and even in most informal markets,” said Mrs Mpofu-Chikarakara.

“The charging of specific products and services in USD is undermining confidence in the local currency, especially when it is being experienced in some government departments such as the VID and at passport offices, which issue indispensable documents.”

She highlighted concerns over the high bank charges and Intermediated Money Transfer Tax, which have led to an increase in cash-based transactions, hampering the effort to formalise the economy and enhance financial transparency.

“This is reducing the incomes of consumers who are already earning below the poverty datum line. The high bank charges are also exerting unnecessary pressure on the demand for cash, especially once one receives money from their accounts, which otherwise could be saved.

“In addition, high bank charges discourage people from banking and promotes informalisation, which is a loss to the fiscus.”

She said a downward review of bank charges is expected from the 2024 MPS mid-term review, adding that the policy move will attract banking, encourage savings, reduce the sudden high demands of cash during month-ends and more importantly, increase the disposable income of consumers.

Confederation of Zimbabwe Retailers (CZR) president, Dr Denford Mutashu, weighed in saying bank charges are becoming increasingly burdensome for businesses, eroding profit margins and straining financial resources. As a result of these prohibitive costs, there is a growing shift towards a cash-based economy.

He noted that another critical issue facing the retail and wholesale sector is the excessive cost of banking, particularly concerning IMTT, which has been standardised at two percent.

“Both businesses and consumers are resorting to cash transactions to avoid the high fees associated with digital payments,” said Dr Mutashu.

“This trend not only poses operational risks but also hinders efforts to formalise the economy and enhance financial transparency.

“The move towards a cash economy is counter-productive, reducing the efficiency of transactions and increasing the potential for financial exclusion.”

As the country reflects on the current economic landscape, more targeted and impactful policy interventions must be implemented to safeguard the broader economy, he added.

Dr Mutashu said the volatility of the exchange rate and the ongoing currency imbalances have placed enormous strain on the operational capacities of businesses, disrupting supply chains and creating significant barriers to sustainable growth.

“The inadequate access to foreign currency through formal banking channels has further exacerbated these issues, leaving businesses with large, illiquid holdings of ZiG for restocking and operational costs,” he said.

“This situation has created a liquidity trap that, if left unaddressed, will continue to erode the viability of formal retail and wholesale operations.

“Moreover, the current policy environment, characterised by stringent regulations and high bank charges, has disproportionately burdened formal businesses, pushing many towards insolvency and inadvertently fuelling the growth of the informal sector.”

Dr Mutashu noted that a shift towards a cash-based economy, driven by prohibitive banking costs, is a clear indication that the existing monetary framework needs adjustment to foster a modern, efficient and transparent economic system.-chronicles