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Writes Dr Tapiwa Mashakada
I have noted with concern that the Zimbabwe Gold (ZiG) Structured Currency cannot buy fuel. This means that it is not accepted by petrol stations as legal tender.
Any currency that cannot be defended by monetary authorities won’t serve its purpose as a store of value and means of exchange, which are the key characteristics of money. The Zim dollar simply became irrelevant because it plummeted against the USD. Authorities failed to stop or reverse its free fall yet there were stockpiles of gold reserves at the Reserve Bank. What has changed?
No local currency can survive alongside the USD. It’s not possible because the economy has dollarized and consumers are transacting in USD. Goods and services are priced in USD. People will prefer to hold the stronger USD compared to the ZiG.
To answer the question of whether or not the ZiG will be accepted by the people, just ask yourself a simple question: Can I buy fuel with ZiG? The answer is a big No.
If a domestic currency will not buy you fuel from the petrol station, then you should know it belongs to the dustbin. That is where the ZiG story ends. It won’t work.
Moreover, why didn’t the RBZ use the so-called gold reserves to support the Zim dollar that was debauched by inflationary pressures?
I don’t even need to belabour the point. The ZiG will suffer the same fate as its predecessor currency – it will collapse.
The ZiG looks like a smart way of removing zeros.
The public has been inconvenienced because, between the 5th of April and the 30th of April, they cannot use their Zim dollar balances. The same applies to civil servants and pensioners who will be stuck on payday.
It is sad to note that commuter omnibus operators are now rejecting the stranded Zim dollar and demanding payment in USD. Even short distances that used to cost 50 cents are now charged 1 USD. The conversion of Zim dollar balances has exacted some losses in value.
The ZiG cannot buy fuel and other commodities. The government itself is demanding 50% of taxes in ZiG and the rest in USD. Why is the government not confident in collecting all taxes in ZiG?
It is such a lack of confidence that is going to debauche the ZiG currency. As Maji Marefu Institute warned, it’s not prudent to introduce a local currency in a multi-currency environment. The local currency will again be reduced to a surrogate currency. The more the RBZ avoids quantitative easing, the more the market demands the USD and drives up the exchange rate.
The truth is that if the ZiG cannot buy fuel, it is not yet a medium of exchange. Zimbabweans want a strong local currency that is not restricted, as legal tender.
Fundamentals are not yet ripe for the introduction of a local currency. We can only wish the new Governor well.
Dr Tapiwa Mashakada is the Executive Director of the Maji-Marefu Institute of International Relations and Security Studies