African airline Fastjet is now accepting the recently introduced local currency, the Zimbabwe Gold (ZiG), for bookings and payments.
Headquartered in Johannesburg, Fastjet serves regional flights between South Africa, Botswana and Zimbabwe.
Fastjet accepting the new currency however has been met with skepticism by some who doubt its wider adoption due to the government’s own reluctance to use it and what some believe is companies cashing in by charging exorbitant rates.
Experts argue that the Reserve Bank of Zimbabwe (RBZ) must defend ZiG on the open market and not arrest people.
This comes after dozens of illegal money changers were arrested a few days ago in Harare.
The ZiG was introduced in February 2024, aiming to curb inflation and stabilize the economy. However, its acceptance has been limited, with essential services like passport fees and fuel still denominated in US dollars.
Hopewell Chin’ono, a Zimbabwean journalist, applauds Fastjet’s decision but argues that for the ZiG to be successful, it needs wider government backing.
“This is a positive development that could benefit the local currency if adopted widely by the whole economy,” Chin’ono said.
He noted the importance of the government accepting ZiG for all transactions, highlighting the lack of trust this creates for businesses.
Peter Mutasa, a political activist points out the vast difference between the quoted price in ZiG and US dollars for a flight to Johannesburg.
Mutasa highlights the discrepancy between the official exchange rate and the exchange rate effectively offered by Fastjet, terming it “propaganda.”
With most businesses allowed to charge exclusively in USD being linked to the ruling party, Zanu-PF, the government’s own actions, seem to contradict its goals.
Experts warn that the gold backed currency will not gain traction and may even become worthless if the government fails to accept it for all transactions.
Commenting on his X handle, economist Tinashe Murapata argues that the velocity of ZiG circulation is much higher than gold.
He says that unlike gold, people spend ZiG quickly to avoid holding it. This effectively increases the money supply, leading to inflation or currency depreciation.
Murapata said that with ZiG becoming the main supermarket currency, people prefer holding goods over ZiG due to low interest rates. This, according to him, weakens ZiG compared to foreign currencies.
He added that restoring trust and confidence in the monetary system is crucial.
“To understand the frenzy to clear everything in the supermarkets using ZiG is to understand three critical ideas in monetary economics;
“(i) Velocity of circulation. While RBZ believes ZiG is backed by gold, ZiG velocity of circulation is not gold but ZWL. With Gold, a consumer can hold off purchases until a week later, whereas with ZiG, they must be rid off as quickly as possible. A high velocity increases money supply at a fixed stock of money. Either the exchange rate must depreciate or prices in ZiG must increase.
“(ii) Bad money drives out good money. When the supermarkets traded at parity with USD, consumers used USD to pay for goods. But overnight USD disappeared in supermarkets and ZiG became the currency of choice. Better to hold physical goods than ZiG. The strength of ZiG is compromised by very low interest rates. Would investors hold Rand bonds or ZiG TB’s. RBZ shouldn’t bury their heads in the sand.
“(iii) Arbitrage is disequilibrium. The RBZ converted ZiG at parity with ZWL rate of 30,000 when the PMR was at least 40,000. Meaning a product in the supermarket that should’ve been ZWL40,000 is currently trading at ZWL30,000. To enjoy this 25% price discount consumers are rational and quickly buying goods. This loss must be borne by RBZ which instead of selling its gold at a ZiG exchange rate of 17 must give supermarkets/manufacturers Gold/Forex at 13.56. If RBZ does this, unfortunately more invoices will come because for the same amount of ZiG stock its velocity is way higher. Reserves can be cleaned out with the purported US$80 million worth of ZiG in circulation.
“It’s also true that at the conversion date, GOZ made payments to contractors and this money had not filtered into the market. Meaning the rate should’ve been 50,000 the next day but was stuck in the bank only to be converted into ZiG. These contractors instead of buying USD at 50k are now buying USD at 30k ( using supermarkets).
“This arbitrage remains because the government of Zimbabwe contractors will ask to be paid in ZiG and not in Nostro for obvious reasons.”
He added: “RBZ has inadequate reserves that only cover reserve money at best. But borrowed ZiG can still buy goods and services and with a velocity of circulation 10X of gold.
“This is why under currency board rules the exchange rate is fixed and conversion is guaranteed by an offshore trusted bank,” Murapata added.
