….shops dump ZiG official rate for two-tier pricing system
…ZiG is a disaster – Biti
. . .analysts say it is a failed experiment
By Beverly Bizeki/ Perpetua Murungweni
Just like other Zimbabwean currencies introduced since the year 2000, the Zimbabwe Gold (ZiG) currency is already showing signs of instability barely half a year after its introduction, with many shops ditching the official rating for a two-tier pricing system making it cheaper to buy using the United States Dollar (USD).
Confidence in the new currency is slowly waning, with the black market exchange rate almost doubling the official bank rate, despite efforts by authorities to thwart illegal forex dealing and currency surpluses when the ZiG was introduced earlier this year.
While the ZiG inflation is officially at 1.5 percent, Zimbabwe’s currency confidence continues to plummet – a common story since the introduction of bearer cheques, which was an attempt to combat hyperinflation that had hit the country in the early 2000s.
Exchange rate instability rearing its ugly head
When the ZiG was introduced on April 6, 2024, it was being traded at 13.42 to the USD and is currently at 14.72 interbank rate. The black market rate is now almost double the official interbank rate, with illegal forex dealers trickling back to the streets.
Most traders in the informal sector are rejecting ZiG payments, while some local retail shops are fleecing consumers by displaying goods in inflated ZiG prices, which do not match the official bank rate.
A quick survey by this publication in local supermarkets including Pick n Pay, Spar and N. Richards Supermarkets gave some discounts when one buys with USD$ and this, technically, means their ZiG prices are equivalent to the black market rates though they say to be using the official interbank rate.
Supermarkets such as Nyaningwe supermarkets have completely ditched the ZiG and are only trading in USD$ for months now. Similarly, the informal sector, also, is largely using the USD as the main currency, rejecting the ZiG which has remained elusive in the sector.
Smaller grocery shops like Goshen General Dealer in Masvingo are using an exchange rate of US$1 to ZiG20 while others like Pivot Grocery Shop are using US$1 to ZiG16.
Other shops only display prices in ZiG and not in USD, which has been described by consumers as a way to silently inflate prices out of the sight of authorities who themselves seem to not know the official bank rate at any given time.
Customers buying in USD in some of these shops are being given incentives like discounts, which has adverse effects on the ZiG.
Failed currency experiment
Analysts say the introduction of the ZiG, though timely, was marred with errors that battered its strength, and it ended up being a failed experiment.
Zimbabwe Confederation of Public Sector Trade Unions (ZCPTSU) Secretary General David Dzatsunga said ZiG, compared to previous local currencies endured, but its scarcity has made the US$ to continue dominating, which is not a good sign.
“Looking at the ZiG relative to previous local currency initiatives by the monetary authorities, it has so far shown greater endurance and resilience leading to a greater stability and predictability to the economy that had been ravaged by runaway inflation.
“Conversely however, the ZiG has been scarce resulting in depressed consumer spending, as disposable incomes have remained low leaving the majority of workers reeling and gasping for breath. More needs to be done to make ZiG the currency of choice as the US$ still dominates transactions, especially in the informal sector which is entirely dollarized,” said Dzatsunga.
Collen Jonasi, a local economist said the ZiG currency started out well, until recently when strong economic fundamentals that should underpin its performance started showing that they had not been applied effectively.
“The ZiG showed signs of endurance from the time it was introduced until recently when we saw it losing value quietly and rapidly, especially on the parallel market. Price stability has also been another aspect that we realized from the introduction of the ZiG until recently when prices have suddenly increased at a somewhat steady rate.
“The strength and performance of a currency is underpinned by strong economic fundamentals such as confidence and production. As long as are still not in place, we may expect to see some instability of the ZiG. Additionally, once confidence is created or restored, the ZiG can start to perform the store-value function which it cannot perform at the moment as economic agents still prefer to restore their value in USD,” said Jonasi.
Dr prosper Chitambara however said the ZiG had displayed some resilience, blaming the mismatch in supply and demand of foreign currency for the depreciation of Zimbabwe’s local currency.
“The ZiG has been characterized by real stability although recently we have seen the widening of the black market premium or depreciation of the ZiG on the alternative market. This is being caused largely by the mismatch in demand for foreign exchange and supply on the interbank market.
“Most business people are failing to have their full foreign exchange requirements being met at the interbank market so it is causing them to then seek recourse on the alternative market. There is a huge numbers of willing buyers which is not being met by willing sellers. We have foreign exchange in our banking sector but most people are not selling their foreign currency and that is one of the challenges that we have. There has been a significant improvement in forex inflows but most people are just holding onto their USD hence the mismatch is creating the widening of the black market premium,” said Dr Chitambara.
Former Minister of Finance, Tendai Biti said the introduction of the ZiG was not only ill-timed but the currency itself was ill-fated like the RTGS, saying there has been a ZiG-induced depression on the market due to people’s lack of confidence in the currency.
“ZiG is a disaster; it should have not been introduced at all. The premium on the parallel market is over 100 percent as it is being traded at around US $1 as to ZiG 27 when the official exchange rate is around US$1 as to ZiG 13. Moreover, the ZiG is not available because you cannot get it in any bank or anywhere else so it is a disaster. Since its introduction there has been a ZiG-induced depression in the market, evidenced by the economy not moving,” Biti said.
Biti also added that it had become clear that foreign currency or gold reserves which were said to be backing the ZiG were not there, which is why the ZiG is on a free fall, and could see people losing money again due to a local currency.
Civil servants agonize ZiG salaries
Civil servants, who receive parts of their salaries in local currency bemoaned the unstable exchange rates that are eroding the value of their income as they end up not getting the true value of what they earn.
One teacher who spoke anonymously for fear of victimization said prices for basic commodities increase nearly every month, and they end up stuck between a rock and a hard surface, with needs that require only foreign currency payments on one hand, while on the other hand mostly groceries can be bought using ZiG.
“Every month, when I receive my salary, shops increase prices of goods. Some shops refuse to accept the local currency, while others use black market exchange rates.
“Another challenge is paying school fees. With schools now opening, most schools only accept 20percent of the fees in ZIG, requiring the remaining amount to be paid in USD. It is hard because I cannot buy USD on the black market because I will be arrested, but still, my children have to pay fees in USD,” she said.
By the prediction of analysts, if confidence in the ZiG keeps declining at the rate it is, by the end of the year its value will have plummeted, and with the country reportedly battling low reserve inflows in gold and foreign currency, the fate remains in the hands of government to practice strong monetary discipline.
ZiG hard cash elusive
Nearly six months after the introduction of the ZiG, bigger notes of the new currency are still foreign in the market, with the general populace hardly having access to them save for the coins and the ZiG10 notes which are used as change in many instances.
Consumers who spoke to this publication said they do not have confidence in the ZiG because they simply have not yet touched the notes months after they went into circulation.
Perpetua Mvura Hungomwa from Sikato Farm in Masvingo peri-urban said there were few times she used ZiG notes, saying she only saw the ZiG10 note when it was given to her as change in public transport.
“Here in Sikato it’s rare to see the ZiG, unless you travel into town, and you only get it as change when you have bought something worth half a US$1. The currency is yet to reach our hands,” said Mvurahungomwa.
Dr Chitambara said the unavailability of the hard currency was resulting in higher demand for USD compared to the new currency.
“Challenges in the availability of the ZiG have resulted in the strengthening of the demand for USD which might explain the depreciation of the ZiG. In a normal monocurrency economy, shortages of a currency should prop up its value, but in a dual currency it’s a different situation.
“This might also be the reason why illegal forex dealers might be trickling back to the streets,” said Dr Chitambara.
