This week marks a year since the government introduced a new currency, the Zimbabwe Gold (ZiG), to arrest runaway inflation and erosion of ordinary people’s incomes.
The ZiG was introduced on April 8, 2024 to become the country’s sixth attempt since 2009 at replacing the basket of multicurrencies with a functional local currency.
At the time Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu said the new currency would be backed by foreign currencies, gold and other precious minerals worth over US$500 million to ensure its stability.
The ZiG was initially pegged at 13.6 to US$1 and there was optimism among long suffering Zimbabweans that the new currency would ease the problems caused by an unstable Zimbabwe dollar, but it was not for long.
Six months later, in September the RBZ devalued the ZiG by 43%, raised interest rates to 35% from 20% and increased cash reserves in response to the free fall of the new currency against the US dollar.
The ZiG has already depreciated by 4% this year amid a tight liquidity environment.
Zimbabweans find it easier to access the US dollar or South African rand than the local currency. Economists such as Eddie Cross, who is a former member of the RBZ’s monetary policy, are already writing the ZiG off.
Cross recently told Bloomberg that that the liquidity crunch had “now killed the ZiG.” “The ZiG has retreated as a currency of trade and effectively we have dollarised,” he said.
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His analysis cannot be faulted because almost all services, including those offered by the government, are no longer priced in local currency. To obtain important government documents such as passports, citizens have to pay in US dollars.
The liquidity crunch has a devastating effect on businesses, especially those in the retail sector, with some major supermarkets being forced to scale down operations or to close shop.
The government has done little to ensure the stability of the local currency and its slow, but steady demise has come as a no surprise to market watchers.
It is, however, important to point out the devastating impact dollarisation has on the economy at large and the quality of life of ordinary people.
Zimbabwe’s has turned into a tuckshop economy because foreigners are attracted by the lure of the US dollar, which is readily available on the informal markets, but Treasury is yet to find ways of taxing the sector.
It is in that light that the collapse of the ZiG must not be celebrated, but it should be a wake-up call to the authorities to do what is right for the ordinary citizen.
