The Zimbabwean government’s efforts to promote the use of its local currency, the Zimbabwe Gold (ZiG), have been marred by a persistent decline in value, sparking concerns over the country’s economic stability.
Since its introduction, the ZiG has depreciated by 50% against the US dollar, trading at 26.8596 last week, down from 13.56. The currency’s value has plummeted 11% in just two weeks.
Experts have been pointing to the government’s failure to address underlying economic issues, including fiscal indiscipline, questionable reserves, and a consumption-driven economy, as key factors contributing to the ZiG’s decline.
The disparity between the official and parallel rates has surged to 41% in just two weeks, raising questions about the RBZ’s next move.
Speaking in Parliament on Wednesday last week, Minister of Justice, Legal and Parliamentary Affairs, Ziyambi Ziyambi, outlined measures to stimulate ZiG use, including requiring 50% of taxes to be collected in ZiG.
“It is a fact that when our ZiG was introduced, the amount that was introduced in circulation was less than the USD. It was about 20%.
“In order to stimulate the use of ZiG, we require 50% of the taxes to be collected in ZiG so that all the companies, if you choose because we still have the multicurrency to trade in the USD at the end of each quarter when you are remitting your QPD, you have to look for the ZiG.
“We believe that it will encourage companies to accept the ZiG,” Ziyambi stated.
“Secondly, progressively, we put in the Finance Bill measures to ensure that when we are collecting taxes, we are going to encourage Government departments as we increase our reserves, to back up the currency to stimulate the use of the ZiG in terms of paying council rates and all other taxes.
“We are putting in measures that will ensure that we stabilise the currency without flooding the market with our currency before we build confidence that will ensure that progressively as we move towards the mono-currency, our currency will be acceptable.
“This is what we are doing to ensure that the acceptability of our country is improved and it becomes a currency of choice.”
Currently, there’s approximately ZW 10.6 billion ZiG in circulation, supported by US$400 million and gold reserves, among other minerals. The backing is intended to maintain the value of the ZiG and control inflation.
Despite the current surge in prices of gold worldwide, the ZiG has continued falling in value.
Ziyambi was asked if there were any measures in place to monitor liquidity concentration, especially when government pays contractors who hold a lot of local currency in their hands.
According to Ziyambi’s calculations, if the government were to use its reserves to buy back all outstanding ZiG, the exchange rate would not exceed 23.5 ZiG per US dollar.
“If you do the mathematics and if Government wakes up today and say we want to dispose of our reserves and buy back the ZiG, the rate at which that will wipe up all the ZiG will not be more than 23.5 per US$.
“We know the amount of currency that is in circulation. When payments are done by Government, we know exactly what we would have paid and we know the effect that those payments can have.
“That is now under control and we are not paying more than what we believe the market can absorb,” Ziyambi stated.
