Five months after its launch, Zimbabwe’s new currency, the ZiG (Zimbabwe Gold), is facing a steep uphill battle, struggling to gain traction and losing significant value on the black market. The gold-backed currency, the country’s sixth attempt at a stable currency in 15 years, has fallen almost 80% since its introduction in April, raising concerns about the government’s plan to make it the sole currency by 2026.
The ZiG was initially pegged at 13.6 ZiG per U.S. dollar, but is now trading at a rate of 20 to 26 ZiG per dollar on the black market, a stark contrast to the official rate of 13.9 ZiG per dollar. This dramatic decline reflects a lack of confidence in the new currency, with many Zimbabweans choosing to stick with the U.S. dollar, a currency they have grown accustomed to using since dollarisation in 2009.
The Reserve Bank of Zimbabwe (RBZ) has acknowledged the pressure on the ZiG, attributing it to increased demand for foreign currency, particularly for grain imports. The RBZ injected $64 million into the foreign exchange market this month to address this demand, following a similar injection of $50 million in July.
However, the central bank’s interventions have failed to stem the tide. Street hawkers, traders, and even businesses are reluctant to embrace the ZiG, citing its instability and lack of trust.
“The ZiG has been getting weaker so it does not make business sense to transact with it. I do not have faith in the ZiG. We have been here before with the Zimdollar,” Maynard Maketo, a street hawker selling candy and recharge cards, said.
Adding to the government’s woes, wheat farmers last week forced authorities to pay them in US dollars for their deliveries, rejecting payment in the local currency due to its sharp depreciation against the US dollar.
This move, which was triggered by the farmers’ fear of losing money due to the weakening ZiG, has dealt a significant blow to the government’s efforts to promote the use of the local currency. The government has been relying on a retention rule, where exporters receive a portion of their earnings in local currency, to build up foreign currency reserves. However, the farmers’ rejection of the ZiG could set a precedent for other farmers and exporters, further undermining the government’s plans.
NewsDay reports that the farmers threatened to withhold their harvest if they were not paid in US dollars, highlighting the potential economic consequences of a disrupted wheat supply.
The government ultimately bowed to the farmers’ demands, confirming in a circular dated September 13, 2024, that the Grain Marketing Board (GMB) would purchase all wheat in US dollars.
“Grain Marketing Board advises all its valued farmers and stakeholders that the winter wheat marketing price has been approved with 100% payment in USD currency,” said GMB chief executive officer Edison Badarai.
“GMB will purchase all wheat financed under the Presidential Input Programme and also wheat from self-financed farmers, wherein self-financed farmers will sell to the best advantage, either to GMB or the market.”
Prices will range from US$450 per metric tonne for standard grade wheat to US$470 per metric tonne for premium grade.
“The problems we face are multiple,” said Eddie Cross, a prominent economist and advisor to President Emmerson Mnangagwa. “We have issued a new currency, the ZiG, and stated that we would defend it at all costs. We are losing that battle and the currency is already 80 percent depreciated. If we do nothing fundamental, it is, like its predecessors doomed.”
The government, however, remains committed to the ZiG, suggesting that more time is needed for the currency to gain acceptance. Persistence Gwanyanya, a member of the RBZ’s Monetary Policy Committee, believes the government can increase the use of the ZiG by charging more taxes in the local currency.
“Government more than any other should show preference for its own currency and there is need for urgent intervention by injecting more foreign currency on the market,” he said.
However, the government’s efforts to stabilise the ZiG are hampered by a number of factors, including a lack of foreign currency reserves, a persistent black market, and a deep-seated distrust of the government’s economic policies.
The recent research by the World Bank and the Confederation of Zimbabwe Industries (CZI) highlights the significant costs of Zimbabwe’s unstable currency. The research found that Zimbabwe’s Treasury lost $3.15 billion in potential revenue between 2020 and 2023 due to exchange rate distortions, a major indication of the impact of a volatile currency on the economy.
Meanwhile, Zimbabweans are bracing for potential bread shortages as wheat farmers’ rejection of the ZiG currency throws the country’s food security into jeopardy. The farmers, who are demanding payment in US dollars for their wheat deliveries, have forced the government to abandon its efforts to promote the new local currency.
This decision, driven by the farmers’ fear of losing money due to the ZiG’s rapid depreciation, could lead to a decline in wheat production, potentially impacting the availability of bread, a staple food for many Zimbabweans. The government’s struggle to stabilize the ZiG, coupled with the growing reluctance of key economic players to accept it, paints a bleak picture for the currency’s future and raises concerns about the country’s ability to address its ongoing economic challenges.
