Zimbabwe crafts plans to enforce usage of its new ZiG currency

HARARE, Zimbabwe — Zimbabwe’s government has ordered its agencies and the private sector to accept its new gold-backed currency and plans to introduce new measures to enforce its use as local markets continue to use US dollars.

The Zimbabwe Gold (ZiG) was introduced last month to tackle hyperinflation after its predecessor, the Zimbabwe dollar, plunged in value. The ZiG is the country’s sixth currency in 16 years. Last month, the government introduced the electronic version of ZiG before introducing notes and coins of the new currency.

Authorities have carried out raids on street currency traders in the past few weeks to enforce the official exchange rate. Finance Minister Mthuli Ncube on Tuesday called on all government agencies and the private sector to “accept the ZiG in all financial transactions.” He separately told parliamentary committees that traders have to accept the ZiG currency because Zimbabwe was in a multiple currency regime where purchasers should be able to use the unit of exchange they have.

The government will “be introducing necessary regulations to ensure that no exchange rate other than the official rate will be used for the pricing of all goods and services” in Zimbabwe, Ncube added. A finance ministry spokesperson told Semafor Africa on Thursday that the government is pushing to drum up usage of the new currency.

“Government is not introducing new regulations but is saying the prevailing interbank foreign currency rate is the rate that is going to be used for all transactions in government and in business,” said the spokesperson by phone.

Neither Ncube nor the finance ministry provided details on when the new regulations would be introduced, or the nature of the measures.

Zimbabwe has struggled with currency crises for nearly 25 years, trying unsuccessfully to tackle hyperinflation through multiple currency changes.

The central bank and government say the new unit of exchange is backed by gold and foreign currency reserves held by the Reserve Bank of Zimbabwe.

Authorities have set an exchange rate for the currency at about 13.66 ZiG to the dollar. However, it has been widely exchanged for up to 20 ZiG to the dollar across various markets, including formal retailers and on the streets of the capital, Harare.

President Emerson Mnangagwa’s government is maintaining a multiple currency regime while pushing for use of the new ZiG currency. His administration wants the multiple currency regime to remain in place until 2030 when it hopes to move to a single currency. But that approach has undermined the launch of ZiG.

Bankers and industrialists say Zimbabwe’s ZiG currency has no takers even across the formal business sector which is heavily regulated to accept the unit, hence the government’s new directive for all economic players to accept the currency.

Zimbabwean business executive Livingstone Gwata said the preferred use of foreign currencies in Zimbabwe was set to deepen as businesses and markets seek refuge in the stability of the greenback. He said he expects foreign currency use in domestic transactions to remain on an “upward trajectory despite government efforts to stabilize the exchange rate and introduction of a new currency.”

John Mushayavanhu, the central bank’s new governor, faces his biggest challenge since taking charge of the Zimbabwean reserve bank on March 28. He must turn around the fortunes of the fledgling currency but there are not enough of the ZiG coins in circulation, according to market watchers. This has reportedly pushed some to devalue the ZiG, albeit unofficially.

Zimbabwean economist Tinashe Marapata said the official exchange rate was a fixed exchange rate that was being imposed, rather than operating on a “willing buyer, willing seller” basis.

“Instead of using its reserves to defend ZiG, the Reserve Bank of Zimbabwe has chosen to suck liquidity out of the marketplace,” said Marapata, adding that it was a form of “price control.”

Businesses told Semafor Africa they would rather record sales in US dollars for stability and value preservation. Many listed companies have reported that their sales are 80% in dollars and 20% in the new local currency.

Denford Mutashu, president of the Confederation of Zimbabwe Retailers, said there is lingering reluctance by manufacturers and suppliers in Zimbabwe “to accept ZiG” for transaction settlements. The ZiG left formal retailers “unable to source and price goods competitively,” he said.

• Zimbabwe’s new currency is part of a broader attempt to overhaul its ailing economy. The government is appealing to its diaspora population and foreigners to invest in the country because it is unable to access offshore credit lines after defaulting on previous loans.