Durable solutions to protect, strengthen and defend the ZiG currency

The properties of any fiat currency like the ZiG are that it must be (a) a means of exchange and (b) a store of value.

These are the essential classical properties of money in any economy.

If ZiG is going to survive as a domestic currency, then it must be accepted as legal tender by all providers of goods and services in Zimbabwe. It means that the ZiG must be accepted by hospitals, schools, fuel stations, landlords, tuckshops, ZIMRA, etc.

Since we are operating a basket of currencies, the ZiG must be one of the major currencies in that basket.

At petrol stations, attendants must accept payment in ZiG at the intermarket bank rate which will allow fuel suppliers to purchase forex from their banks using their ZiG balances.

 Before the introduction of the multi-currency regime in 2009 to curb hyperinflation, this is what used to happen in Zimbabwe. All transactions were paid in the local unit. The caveat is that the Reserve Bank must be able to provide the required forex to fuel retailers as and when required to avoid fuel shortages. Once the ZiG is accepted at petrol stations, it will become a much sought-after legitimate currency of choice.

If the government continues to insist on payment of fuel in USD, this is what will happen –  motorists will buy USD from the street to buy fuel. Civil servants will harden their ZiG balances by buying USD from the street to buy fuel. This will trigger the parallel market again and it becomes a vicious cycle.

The mischief is of course the cross-border traders who need the USD to buy their wares and stocks. These will continue to fuel the parallel market as they cannot get money from banks. The solution is to reintroduce Bureau de Changes across the country and the introduction of import

 licences for bona fide cross-border traders.

In other words, the ZiG can work provided it is supported by a battery of measures to promote its usage and velocity of circulation.

In my view, there are two options that the government can use to strengthen ZiG.

1. Allow all domestic purchases in Zig including fuel purchases.

2. Open bureau de changes supported by the issuance of  import licences to traders

3. RBZ to provide forex to fuel suppliers via its 15% surrender requirements.

4. A statutory instrument is required to enforce the Zig as legal tender.

5. Revert to more non-digital currency because electronic balances are fuelling inflation and money supply growth. Plastic money ( Debit cards) and electronic payments must be temporarily suspended to control the money supply. The RBZ must simply increase daily withdrawal limits such that the public has enough cash to transact. This is a  back-to-basics approach

6. Ratchet up production to achieve complete import substitution

7. Maintain a competitive price discovery mechanism on the foreign exchange market.

1. Issue a statutory instrument abolishing the use of the USD in all domestic transactions with immediate effect. This would be a radical but necessary approach. De-dollarization would lead to the demand and strengthening of the ZiG as long as the money supply is kept within the limits of the forex and gold reserves in the RBZ and Treasury vaults. The ZiG cannot operate in a market that is completely dollarized. Consumers will prefer USD all the time and this will weaken the Zig.

The ZiG currency will suffer the same fate as the bond notes, RTGs, and Zim dollars if the government does not adopt either of the 2 inevitable options.

If the RBZ carefully follows the above prescriptions, it is possible for Zimbabwe to once again be proud of a strong currency. It is possible to restore public confidence in the domestic currency. People don’t have short memories. They lost their money several times in the past each time Zimbabwe introduced a new currency.

Please note that it is not possible to completely kill the black market but it can be de-escalated to insignificant levels. Even in New York, Brussels, and London, you still have the parallel market downtown but its impact is negligible.