Treasury has assured the public that it will soon announce additional measures to support the country’s newly introduced structured currency, the Zimbabwe Gold (ZiG), it has been learnt.
This assurance comes in response to calls for complementary fiscal policies following the unveiling of the 2024 Monetary Policy Statement by the Reserve Bank Governor, Dr John Mushayavanhu.
In his maiden MPS, Dr Mushayavanhu introduced a new currency, the ZiG, replacing the Zimbabwe dollar in both electronic and physical forms.
Backed by a combination of foreign currency and gold reserves held by the central bank, the ZiG aims to address the hyperinflation that plagued the previous currency. It is expected to offer greater transactional convenience, exchange rate stability, and act as a reliable store of value.
ZiG is a structured currency anchored by a composite basket of foreign currency and precious metals (mainly gold) held as reserves for this purpose by the Reserve Bank.
This means that a Central Bank can only issue domestic notes and coins when fully backed by a foreign “reserve” currency or foreign exchange assets and that the currency is fully convertible into the reserve currency on demand.
The new currency will co-circulate with other foreign currencies in the economy.
According to the central bank, ZiG notes and coins shall be issued in denominations made up of 1ZiG, 2ZiG, 5ZiG, 10ZiG, 20Zig, 50ZiG, 100ZiG, and 200ZiG, which will be distributed through the usual normal banking channels and, will be fully covered by the quantity and value of gold and foreign currency held as reserves.
The currency denominations are also informed by the intervening exchange rate of the ZiG to the US$ which started at 13,56 ZiG to US$1 but has since firmed to 13,45 to the greenback as of Thursday morning.
As of 5 April 2024, the Bank has reserve assets of US$100 million in cash and 2,522 kgs of gold (US$185 million) to back the entire local currency component of reserve money, which currently stands at ZW$2.6 trillion requiring full (100 percent) cover of gold and cash reserves amounting to US$90 million. The gold and cash reserve holdings currently with the bank represent more than three times cover for the local currency being issued.
To ensure the sustainability of the exchange rate system, among other measures, the central bank said there would be continued fostering of super demand for the local currency by Government through a mandatory requirement for companies to settle at east 50 percent of their tax obligations on Quarterly Payments Dates (QPDs) in ZiG.
The central bank will implement strict adherence to the Statutory limit on bank lending to the Government.
With these and many other monetary measures, the central bank is confident the ZiG will be more stable than its predecessor.
Central bank governor warned economic agencies from betting against the ZiG.
He said he has enough foreign currency to buy all the ZiG in the economy amounting to approximately US$90 million dollars worth against his cash holdings of US$100 million plus gold worth US$185 million.
While the central bank has outlined various monetary measures to maintain the ZiG’s stability, concerns have been raised about the sufficiency of these measures alone.
Economists and market observers, like Economist Professor Gift Mugano, have emphasised the need for supporting fiscal policies. Proposals
include requiring companies to settle a larger portion of their tax obligations in ZiG, directing all government payments and fees to be denominated in ZiG, and mandating fuel stations to accept both ZiG and US dollars.
Prof Mugano took to social media platform X and said Finance, Economic Development and Investment Promotion, Minister Ncube “must urgently present fiscal measures to complement the Monetary Policy”.
He said the Minister must direct all local payments by the GOZ to be in ZiG as well as directing all duties, taxes, levies and fees including government services such as passports, birth certificates, death certificates, to be in ZiG.
Like many Zimbabweans, Prof Mugano also said fuel stations must be directed to accept both ZiG and USD.
Without these supporting fiscal measures, Prof Mugano said ZiG will not last.
Responding to questions in the National Assembly on Wednesday on some of these matter, Mthuli pleaded for patience telling legislatures that Treasury will soon announce fiscal measures meant to support the 2024 Monetary Policy Statement (MPS).
Mthuli acknowledged these concerns and urged for patience. He assured lawmakers that the government is working on a comprehensive fiscal policy package to bolster the ZiG.
This package will include designating specific services and transactions that must be conducted in ZiG, but the Minister emphasized a measured approach.
He explained the need to give businesses time to adjust after recent tax changes outlined in the 2024 National Budget Statement.
“The statement is coming. Just be patient with me and we will make the announcement sooner,” he pleaded.
“In the fullness of time, we will announce specific services that can be purchased in ZiG as we seek to promote the demand for our local currency.
“We will be very specific when we make the announcement as to which fees and which taxes will be paid in ZiG beyond the request that corporates pay in domestic currency.
Mthuli said he also wanted to give the business community breathing space before announcing additional measures to those announced in his 2024 National Budget Statement.
“There will be more coming through. You know, we have just gone through what I will call a very gruelling period Madam Speaker Ma’am since the announcement of the 2024 Budget with various tax measures and so forth, making adjustments, sugar content tax, this and that.
“We did not want as fiscal authorities, to start announcing further things on the fiscal front. We have just gone through that. We think the industry is fairly comfortable now. We want to make sure they are accountable so that they can continue to employ more people to grow export and so forth.
“I did not want to start imposing further fiscal measures immediately. We will do those gradually overtime but something is coming.
“That is the reason why we held back on announcing a few fiscal measures after having gone through fiscal measures through the 2024 Budget,” said Minister Mthuli.
