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End of Multi-Currency System as ZiG Dominates Local Markets

Emmerson Mnangagwa
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HARARE – President Emmerson Mnangagwa announced a potential end to Zimbabwe’s multi-currency system within the next two years, as the Zimbabwean Gold-Backed Currency (ZiG) continues to gain traction in the local market.

Speaking at the commissioning of a new fruit juice processing factory in Mutare, the President emphasized the increasing use of ZiG and its pivotal role in achieving economic stability.

“The progress we have seen with ZiG suggests that within two years, perhaps even sooner, Zimbabwe will conduct day-to-day business exclusively in its own currency,” President Mnangagwa stated. “This transition will be largely automatic and painless, reflecting the growing acceptability and use of ZiG.”

The ZiG, introduced three months ago, has already made significant inroads. Prior to its launch, approximately 80% of local transactions were conducted in foreign currency, predominantly US dollars. This was particularly evident in the informal sector, where tracking transactions can be challenging.

Retailers have reported an increase in the use of ZiG among customers, although some manufacturers continue to charge in US dollars, a practice under scrutiny by the Reserve Bank of Zimbabwe (RBZ). The RBZ is collecting data on this illegal behavior, aiming to enforce compliance.

A concerted effort to curb the black market for foreign currency has also contributed to ZiG’s stability. The RBZ’s Financial Intelligence Unit (FIU) has targeted both street dealers and significant players, freezing suspicious bank accounts and imposing penalties. This crackdown has mitigated the black market’s influence on exchange rates.

Economist Prosper Chitambara commented, “The decline in black market activities has helped separate ZiG and US dollar transactions, maintaining stability in the currency markets.”

The stability of ZiG is further reinforced by gold and foreign currency reserves held by the RBZ. At the time of ZiG’s introduction, these reserves included 2.5 tonnes of gold, providing substantial backing for the currency. Ongoing mining royalties continue to bolster these reserves.

Additionally, a narrowing trade deficit has supported ZiG. The current account has remained positive, with diaspora remittances and investment inflows more than offsetting the trade deficit. As this trend continues, the RBZ expects that petroleum imports will eventually be fully funded via commercial banks, further enhancing ZiG’s use.

Reserve Bank Governor John Mangudya highlighted, “Our gold and foreign currency reserves ensure that ZiG is a strong and stable currency. The declining trade deficit and positive current account are critical factors in this stability.”

The Ministry of Finance, Economic Development, and Investment Promotion has been vigilant in controlling money supply, ensuring it grows in line with economic expansion. This disciplined approach is crucial for maintaining inflation control and economic stability.

Finance Minister Mthuli Ncube stated, “We have successfully controlled money supply growth, aligning it with economic growth. This disciplined approach is essential for sustaining ZiG’s stability and the overall economy.”

The International Monetary Fund (IMF) and World Bank have expressed cautious optimism about Zimbabwe’s economic trajectory, noting the importance of continued reforms and fiscal discipline.

Ray Ndlovu of Bloomberg observed, “Zimbabwe’s move towards a single currency system with the ZiG is a significant step towards economic normalization. Stability in the currency will attract more investor confidence.”

Business leaders and retailers have also responded positively to the President’s projections. However, they stress the importance of ensuring that manufacturers comply with local currency regulations to maintain this momentum.

Sylvester Mupanduki, a financial analyst, noted, “Stability brought by the ZiG allows us to forecast company cash flows with precision, attracting more investors to the market.”

President Mnangagwa’s vision of a single-currency economy aligns with global norms, positioning Zimbabwe for a stronger economic future. The transition, underpinned by robust monetary policy and fiscal discipline, promises to enhance economic stability and investor confidence.

As ZiG continues to gain acceptance, Zimbabweans can look forward to a more stable and predictable economic environment, ultimately leading to sustainable growth and development.