TOP researcher and director of independent policy think-tank Sivio Institute, Tendai Murisa, says while the new Zimbabwe Gold (ZiG) monetary unit has been introduced to solve immediate currency issues, it is unlikely to address the deeper problems causing poverty and inequality in Zimbabwe.
NATHAN GUMA
On 5 April, the Reserve Bank of Zimbabwe (RBZ) new governor John Mushayavanhu introduced the ambitious ZiG currency backed by gold and other precious minerals to replace the fast-waning Zimbabwe dollar.
The dramatic introduction has seen traders across the country rejecting the Zimdollar which had been used for change, placing consumers in a fix, with the ZiG yet to fully come into circulation.
In his analysis titled Zimbabwe’s New Monetary Policy Statement: A Brazen Attempt at a Silver Bullet, Murisa said while the currency has been introduced, several modalities which include public confidence coupled with a lack of political will in policymaking are not in place, which casts its future in doubt.
“The ZiG may in all fairness succeed and if that were to happen, Zimbabweans would have some form of relief from daily financial gymnastics. Beyond that, the structural problems of poverty and inequality will remain intact,” Murisa said.
“According to many sceptics, the government cannot be trusted to keep their word even for a month. They are most likely to print a lot of the stated ZiG beyond the assurances they have made to settle their positions. Such an argument is probably more scientific than what calls for blind trust in a government that has repeatedly broken its promises.
“The present government has since 2017 been very good at pushing rhetorical narratives of grand transformation. Similar claims were made in 2018 about the RTGS, that it has the backing of Afreximbank to guarantee its 1:1 convertibility to USD — yet the currency collapsed dramatically. People have learnt their lessons from the 2007/8 period and there is no assurance that there will be no repeat of the same.”
Murisa said very few people have confidence in treating the currency as a reliable medium to long-term store of value.
For instance, people receiving local currency quickly look for means of disposing of it either through purchasing United States dollars or securing goods, while rarely keeping it in savings accounts.
Murisa said the future of the new currency is also cast into doubt by lack of political and economic will in implementing policies which has riddled the country over the past decades.
“The strange thing about Zimbabwean policymaking is always that the custodians of policies are usually always the first to put spanners in the works. The monetary policy statement refers to the fact that some statutory payments such as the Provisional Tax for each Quarterly Payment Date (commonly referred to as QPDs) will have to be settled in the local currency,” Murisa said.
“There is no reference to daily consumer goods — except the mention that supermarkets are expected to display prices in ZiG. The assumption here is that the black market rate would be wiped out instantly — thus the prices reflected in supermarkets and other trading places will be based on a widely accepted and used rate. The usage of the United States dollar is widespread and deep. Goods and services are priced in United States dollars even in remote rural areas. How do we change that practice?”
Murisa said the new currency is likely to be destabilised should the government continue paying contractors in local currency.
Trends have shown that there is always a recurrent spike in the exchange rate whenever the government makes payments to infrastructure contractors.
“Local contractors behave in the same way as other citizens. Soon after being paid in local currency they try to retain the value of funds received by purchasing United States dollars, usually on the black market,” Murisa said.
“The rate is rarely pushed by ordinary citizens buying US$100 here and there but usually through Treasury-related payments. Is the government going to change their payment method and start settling local contractors’ invoices in United States dollars? That could work but is not likely. If the trend is going to continue, then there is a high probability that the government will give in to the temptation to print more ZiG notes or ‘increase’ digital balances.”
The government has also been entangled in a long history of money printing with digital balances exceeding hard currency figures.
“To settle these amounts, for instance, the former governor always held onto his claim that he was not printing money-referring to paper money — but the actual RTGS (digital) money was growing due to these payments to exporters. There have always been more digital balances than paper money in circulation. Fixing that will be the first major undertaking of dealing with underlying factors driving the rate,” he said.
Murisa said the monetary policy presented by Mushayavanhu upon the launch, has also failed to adequately address questions of inclusive growth, as the widespread use of the ZiG may promote export competitiveness if production costs are met with a cheaper local currency.
“Perhaps this is where the monetary policy will prove to be a huge challenge. The shift towards a more market-determined exchange rate will promote an increase in short-term trade opportunities. Most imported goods will remain as items for reselling,” he said.
“Funds for long-term capital investment that have been in short supply will literally dry. The stability envisaged in the rate is not necessarily growth-oriented at all. Abandoning the auction in the manner that the government did, whilst good for addressing borderline criminal activities, should not suggest that the provision of affordable foreign exchange was necessarily bad.”
“Some beneficiaries abused a good initiative. However, there are quite a number of manufacturing entities that could do with friendly recapitalisation financing for them to adequately compete against cheap imports. Furthermore, few SMEs benefitted under the previous monetary policy. The current framework is silent on how it will seek to cushion these economic actors.”
