VERNA NYAMUCHENGWE
ECONOMISTS say the newly introduced Zimbabwean Gold (Zig) has helped stabilise domestic trade although it is too early to judge currency stability in the long run due to low volumes in circulation.
The Reserve Bank of Zimbabwe (RBZ) introduced the Zig at the beginning of April 2024 after the Zimbabwe dollar’s value had collapsed amid an annual inflation rate increase of 55.3% in March.
Up to Zig 46 million in notes and coins was dispersed into circulation by the RBZ and weekly cash withdrawal limit was set at Zig 3 000 for individuals and Zig 30 000 for corporates.
While the ZIG has brought shortterm stability to the market, economist Prosper Chitambara said it is crucial to closely monitor its circulation to ensure sustainable economic growth in the long run.
Zimbabwe has a history of challenges in money supply growth and sustaining stability.
This can be related to the 2016 introduction of bond notes and coins by RBZ which the authorities claimed were at par with the US dollar.
It worked for a short period until the parallel market began trading off the local currency against the US dollar, plummeting the local currency’s value.
Chitambara said the Zig’s success therefore hinges on whether it can win public trust and stabilises as a reliable local currency.
“The stability of Zig is critical in terms of ensuring overall macro-economic stability, of course including price stability,” Chitambara said.
“So, we need to continue to build on the momentum that we have created by continuing with the reform agenda which seeks to ensure both monetary and fiscal prudence, that is the core. And if we are able to sustain this, say for a year, definitely that will help in terms of ensuring that there is sustainability in the macro economy,”
With a limited supply of Zig in circulation, Chitambara said, the situation will fuel a strong demand for the currency, boosting its acceptability and contributing to sustained stability, if properly maintained.
Chitambara projected the feasibility of having businesses to pay 50% of their taxes in Zig as most companies have adopted the dual currency system, both Zig and US dollar, thereby promoting the use of the local currency and supporting economic stability.
“The prospects of paying all taxes, well that would be a de-dollarised situation,” Chitambara said.
“If we reach a stage where all taxes are now being paid in local currency, it means we have successfully de-dollarised with respect to tax payments. But it is important to view this as a medium to long-term vision.”
Economist Vince Musewe said the apparent currency stability is deceptive as the scarcity of Zig notes and coins is hindering money circulation despite efforts to avoid a cash glut.
“The stability is a result of drip-feeding of the Zig by the RBZ. It can only be fully tested by increased liquidity. Until then, we cannot conclude that the current stability is due to increased confidence,” Musewe said.
