RBZ Governor John Mushayavanhu and FIU declare war on individuals and companies making ZiG currency lose value

Zimbabwe’s central bank has declared war on individuals and companies it blames for undermining the value of the nation’s newly launched Zimbabwe Gold (ZiG) currency, vowing to “double efforts” against those it deems “currency saboteurs.”

The ZiG, short for Zimbabwe Gold, is being quoted at between 16 and 26 to the dollar on the parallel market, according to ZimPriceCheck, a website that tracks both official and unofficial exchange rates. It’s trading at 13.94 per dollar on the official market, according to data on the central bank’s website on Thursday.

The discrepancy, according to Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu, is due to “some unscrupulous traders and individuals allegedly quoting exorbitant implied exchange rates when selling goods and services in ZiG.”

“It is, however, critical to note that parallel market exchange rates in a dual economy should not be taken as a reflection of the true value of the exchange rate,” he added in an emailed response to Bloomberg’s questions.

The RBZ, along with the financial intelligence unit (FIU), will “double their efforts toward enforcement of the country’s foreign exchange and currency regulations. The central bank will also closely monitor developments on the parallel market “with a view to mitigate against extreme exchange rate distortions,” said Mushayavanhu.

This latest declaration of war comes as the ZiG, Zimbabwe’s sixth attempt at establishing a functional local medium of exchange in 15 years, faces a growing challenge in a market dominated by the US dollar. Since its introduction on April 5, the ZiG has experienced a steady decline against the greenback, leading to a surge in prices for basic commodities and a growing preference for US dollar transactions.

The ZiG was initially pegged at 13,56 to the US dollar, but it has since shed value, trading at a record low of 13.95 per dollar on Tuesday, according to data from the central bank’s website. This depreciation has further eroded public confidence in the ZiG, with many resorting to the US dollar as a store of value and a means of exchange.

The current rush to hold US dollars is largely speculative and stems from “the country’s unfortunate past episodes with local currencies,” Mushayavanhu said. The central bank is committed to policy certainty and stronger market guidance as well as restoring its credibility as the chief underwriter of the local currency, he said.

The ZiG weakened for an 11th day on Thursday, according to central bank data, it’s longest losing streak since it was adopted.

The government has also been working on strengthening the country’s new currency. The ZiG, as it’s called, was introduced earlier this year and started life at 1:13 to the USD. However, since then, the ZiG has depreciated on the black market. The government insists that the exchange rate has not flinched but the streets say the ZiG has depreciated by almost 100% against the USD.

The government is aware of the divergence between the official and parallel market rates and has been making efforts to address it. We have seen mass arrests of money changers, who have largely been driven off the streets, and retailers’ bank accounts have been frozen for declining the ZiG or using the black market rate.

Despite these efforts, the ZiG has continued to depreciate on the black market, all while remaining somewhat scarce. It’s important to note that the ZiG has brought a semblance of stability to the economy, despite its depreciation on the black market. Admittedly, the bar was low, given that the ZWL it replaced was a disaster, and any alternative would have been an improvement.

The latest currency turmoil coincides with increased demand for dollars, which has helped revive parallel market activity. Trade on the unofficial market slowed down soon after the ZiG’s April 8 adoption because of a nationwide blitz by the financial intelligence unit and police, in which some street currency dealers were arrested while others abandoned popular corners in the city centers to conduct transactions with known clients on Meta Inc’s messaging platform WhatsApp.

The RBZ has acknowledged the challenges facing the ZiG, attributing the current rush to hold US dollars to “the country’s unfortunate past episodes with local currencies.” The central bank is committed to policy certainty and stronger market guidance as well as restoring its credibility as the chief underwriter of the local currency, said Mushayavanhu.

Vice President Constantino Chiwenga, last week spoke out about the importance of a national currency, stating: “No nation will develop without sovereign control, defence and growth of its own national currency. Our government introduced the Zimbabwe Gold as our new sovereign currency. It is our responsibility as a nation to embrace and protect the new currency as a bedrock and anchor of our economic development.”

The ZiG, short for Zimbabwe Gold, fell for a ninth consecutive day on Tuesday because of a shortage of dollars caused by a lack of sellers in the interbank market as the new currency takes hold. Dollars are now used in 60% of transactions compared with 85% when the ZiGs was adopted, with the local unit making up the balance.

The scarcity has forced the central bank to pump $190 million into the market to support the ZiG, a Reserve Bank of Zimbabwe monetary policy committee member, Persistence Gwanyanya told Bloomberg in a Sept. 2 interview. Governor John Mushayavanhu didn’t immediately respond to a text message seeking comment.

The ZiG traded at a record low of 13.95 per dollar on Tuesday, according to data on the central bank’s website, and has lost almost 1% of it value since Aug. 29. It changed hands at between 16 and 26 per dollar on the resurgent street market, according to ZimPriceCheck, which tracks official and unofficial exchange rates.