HARARE – Businesses in Zimbabwe are facing significant hurdles in securing foreign currency from banks to finance the procurement of essential production inputs, raising concerns about the acceptance and stability of the country’s new currency, the Zimbabwe Gold (ZiG).
Zimbabwe’s history with domestic currencies has been tumultuous, with the local unit facing rejection from the market due to hyperinflation, leading to the adoption of foreign currencies in 2009. The reintroduction of a domestic currency in February 2019 was met with volatility and high inflation, undermining confidence in the new currency.
Efforts to promote the acceptance of ZiG, launched on April 5, 2024, have faced resistance, with many economic agents preferring transactions in foreign currency, particularly the US dollar. The persistent gap between the official and parallel market exchange rates has further dampened confidence in ZiG.
Challenges surrounding ZiG’s convertibility and limitations on essential purchases, such as fuel, have hindered its adoption. The inability to use ZiG for key transactions, coupled with tight US dollar liquidity in the formal market, has led to producers demanding exclusive payment in foreign currency.
Zimbabwe’s heavy reliance on imports for raw materials exacerbates the forex scarcity, with banks unable to meet the industry’s demand for foreign currency. Despite assurances from authorities that legitimate forex requests can be funded through banks, many financial institutions have cited a lack of hard currency.
In response to the currency challenges, the Confederation of Zimbabwe Industries (CZI) has urged authorities to focus on ensuring ZiG’s convertibility for all legitimate transactions and leveraging transactional demand to build reserves for the currency. CZI emphasizes the importance of stabilizing ZiG to restore market confidence.
However, concerns persist among economic stakeholders, including retailers and small businesses, who highlight the practical difficulties in accessing forex through banks. Many businesses report being unable to procure necessary inputs due to forex shortages, leading to operational challenges.
Government officials stress the importance of using the official exchange rate for pricing goods, despite disparities between official rates and market rates. Efforts to address forex shortages through the liberalization of the foreign exchange market aim to stabilize ZiG and boost confidence in the currency.
While the Reserve Bank of Zimbabwe (RBZ) has reportedly begun selling forex to banks to meet importers’ requirements, challenges remain, including disqualifications for ZiG loan holders. The overall supply of forex has improved marginally, but concerns persist about the sustainability of these measures.
Economists warn of growing confusion and skepticism surrounding ZiG, which could undermine its acceptance and value in the market. Disparities between official rates and market rates, coupled with limited understanding of ZiG’s worth, further erode confidence in the currency.
As Zimbabwe grapples with forex shortages and currency challenges, stakeholders emphasize the need for transparent policies and effective measures to address the underlying economic issues and restore confidence in the financial system.
