IMF’s push for ZiG as sole legal tender met with skepticism in Zimbabwe

HARARE – A recommendation from the International Monetary Fund (IMF) to make Zimbabwe’s ZiG currency the exclusive legal tender is being met with widespread public skepticism, primarily due to the nation’s turbulent economic history and deeply entrenched distrust in official financial policies.

IMF mission chief Wojciech Maliszewski this week affirmed the multilateral lender’s support for the Reserve Bank of Zimbabwe’s efforts to stabilise the economy through the ZiG, stating that the IMF “supported the objective of using ZiG as the sole legal tender once conditions are appropriate.”

The ZiG was introduced in April 2024 as the sixth currency reform since 2009, replacing the hyperinflation-prone Zimbabwe dollar. The government claimed it is backed by gold and other precious minerals.

However, Maliszewski also highlighted crucial preconditions for the ZiG’s success, including greater flexibility in the foreign exchange market to achieve full price discovery and the convergence of official and parallel exchange rates.

Currently, the official exchange rate stands at ZiG$26.95 to the US dollar, while the parallel market rate fluctuates between ZiG$32 and ZiG$35.

The IMF stressed the need for fiscal discipline and market-driven confidence, cautioning against monetary financing and emphasizing strengthened reserve coverage.

Despite the IMF’s endorsements, an analysis by Pricecheck has suggested that a push for a mono-currency system at this juncture is fraught with peril. The analysis underscores several critical challenges:

While the gap between the official and parallel market rates has narrowed, a true convergence remains elusive. Pricecheck argues that as long as the formal market remains restricted, a parallel market will persist, undermining the goal of a single exchange rate.

It has also been noted that the limited circulation of physical ZiG notes, with the highest denomination being a ZWG 20 note (worth approximately US$0.50), poses a significant practical hurdle.

The informal sector, which heavily relies on cash, largely operates in US dollars due to the impracticality of using low-denomination ZiG notes for meaningful transactions.

The government’s hesitancy to print higher denominations stems from fears of triggering hyperinflationary memories and the high cost of currency that might quickly lose value.

“Even if the exchange rate issue were magically resolved tomorrow, a far more practical problem stands in the way: you can barely find any physical ZiG,” Pricecheck noted.

The organisation further noted that the most formidable obstacle is the deep-seated lack of trust between the Zimbabwean populace and the government.

Decades of economic instability, wiped-out savings, and a perceived lack of accountability for past policy failures have eroded public confidence. The unannounced introduction of the ZiG, which led to frozen bank accounts, further exacerbated this mistrust.

“The biggest, most insurmountable hurdle is not technical or logistical; it is emotional and historical. The Zimbabwean government has a colossal trust problem.

“For over two decades, citizens have been subjected to disastrous policies, only to be told that the resulting economic chaos is the work of nameless “saboteurs” and Western enemies. There has been no accountability, no apology, and no acknowledgement of failure.

“Citizens have had their savings and pensions wiped out multiple times by currency changes. The very introduction of the ZiG was a prime example of this disrespect. It was unleashed on the population with no warning or consultation.

“Bank accounts were frozen for a week, leaving people unable to transact and businesses in limbo. This is not how you build the confidence needed to ask people to abandon the safety of the US dollar,” analysts noted.

Meanwhile, the analysis noted that forcing a ZiG mono-currency without first addressing these foundational issues, particularly the trust deficit, the availability of physical currency, and a truly free foreign exchange market, could lead to another economic crisis.