ZIMBABWE’S controversial new ZiG currency is dramatically depreciating in the black market as margins widen for informal traders and corporates seeking profitable arbitrage opportunities, a harbinger of worse things to come.
BERNARD MPOFU
This is despite authorities’ repeated shrill assurances that ZiG is backed by gold and foreign exchange reserves. ZiG has been received with widespread scepticism and cynicism, with the public saying it is just another Zimbabwean dollar version by another name.
The currency has suffered instant ridicule and rejection in the process, crashing market confidence in it. Without confidence and trust, as well as key basic characteristics of money like convertibility and acceptability, ZiG is doomed.
This comes as the government has now arrested 65 illegal money changers over parallel market deals.
This is not new. Government has always arrested currency traders for the same reasons before, from the streets to corporate offices.
For instance in 2018, police arrested 478 illegal foreign currency traders on one fell swoop amid a sweeping clampdown on dealers.
ZiG has now replaced bond notes and the Zimbabwean dollar which were on freefall amid surging inflation, launched in 2016 and 2019, respectively. Zimbabwe has been struggling with currency and exchange rate volatility — and associated high inflation- for more than a decade now.
ZiG is the country’s sixth attempt to launch a new currency since 2008 when inflation scaled 79.6 billion percent per month before soaring to an unprecedented level of 89.7 zillion percent by November that year, according to the International Monetary Fund.
Other versions of the Zimbabwean dollar include the origin local currency, traveller’s cheques, special agro-cheques, bearer’s cheques, bond notes and now ZiG.
Zimbabwe has a long complex currency history, having experienced hyperinflation amid an economic meltdown in 2008.
In 2009, the country abandoned its local currency and adopted a multi-currency system, which included the US dollar, Pound, South African rand, and other foreign currencies.
It later demonitised the Zimbabwean dollar, which only bounced back after a decade. In 2016, it introduced bond notes amid a multi-currency regime.
In 2019, government reintroduced the local currency in its various manifestations, including RTGS dollar (Real Time Gross Settlement dollar) and bond notes.
It removed the multi-currency system.
However, due to economic challenges and high inflation, the local currency suffered serious volatility and exchange rate instability.
In 2020, government was then forced to reintroduce the multi-currency regime.
Since then, the use of the US dollar has immensely grown in the economy, with the national statistics agency Zimstats saying over 85% of market transactions are in the greenback.
Last year, authorities said they will maintain the multi-currency system, anchored by the US dollar, until 2030.
Even though ZiG has been introduced, it only accounts for 15% of market transactions.
