• ZiG has appreciated against the US dollar on the formal market, maintaining a positive streak since its launch on 5April 2024
  • Concerned about the thriving black market, the government warns money changers and promises strict action
  • Historical precedents and limitations of the ZiG currency raise doubts about the effectiveness of forceful measures

Harare- Zimbabwe's newly introduced currency, the Zimbabwe Gold (ZiG), has experienced appreciation on the formal market on April 18, 2024, maintaining a consistent streak of appreciation. Since its introduction on April 5, 2024, the ZiG has been steadily appreciating against the US dollar.

On April 18, the ZiG's value increased to ZiG13.3437 against the US dollar, compared to ZiG13.4 the previous week. The ZiG is reported to be backed by reserves of US$100 million and 2.5 tonnes of gold worth US$185 million. Therefore, with these reserves totalling US$285 million, it is expected that the currency will stabilize, ensuring stable prices and promoting economic growth.

However, due to fear and lack of confidence in the policymakers, the currency has already depreciated on the parallel market, which is determined by market forces. Within two weeks, it has depreciated significantly by 20%.

This is not a new situation for Zimbabwe, as in 2016 the government introduced Bond Notes, which later transformed into the legal tender ZWL in 2019.

The Bond was said to be backed by US$200 million from Afreximbank. While stability was initially maintained in the short term, by 2019, Zimbabwe had already entered a period of hyperinflation.

When the Bond was introduced, it was traded at a 1:1 ratio with the US dollar. However, within barely a month, the exchange rate had surpassed 1:30 on the parallel market.

This historical context has left the business community and citizens pessimistic about the current situation.

In response, the government has promised to take strong action, cracking down on money changers and imposing heavy fines on those found engaging in illegal activities.

The government has also pledged increased police patrols to suppress the black market.

However, the effectiveness of using force as a monetary policy tool is questionable when it comes to restoring accountability, confidence, and trust.

Historical examples, such as Mussolini's regime and former Nigeria’s efforts, have shown that relying on force alone fails to address underlying economic issues.

Instead, a comprehensive approach involving policy changes, a focus on economic fundamentals, and improved policing strategies is necessary for a functioning economy and stable currency.

Threatening street money changers does not restore confidence and trust in the currency.

Rather than relying solely on enforcement by the police, addressing the underlying issues requires a holistic approach that includes reorientation, policy changes, and improved policing strategies.

It is important to recognize that the existence of a black market is a consequence of the formal market's inability to provide foreign currency conveniently to its citizens.

The limitations of the ZiG currency further worsen the situation, as it cannot be used for essential services such as fuel, passport application charges, custom duties, airline tickets, rentals, and medical bills.

As a result, the scarcity of US dollars and their limited availability in commercial banks drive citizens, especially those without bank accounts, to resort to the black market.

This flourishing parallel market reflects inadequate economic fundamentals and the coercive nature of economic and political policies.

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