• Applying force as a monetary policy tool undermines accountability, confidence, and trust in the currency, as demonstrated by historical failures
• The swift devaluation of the Zimbabwe Gold (ZiG) currency highlights the lack of trust and confidence in monetary authorities, necessitating focus on economic fundamentals rather than crackdowns on money changers
• Limitations of the ZiG currency, such as its inability to pay for essential services, contribute to the thriving parallel market

Harare- The Zimbabwean Government's introduction of the Zimbabwe Gold (ZiG) currency has shown initial signs of stability and acceptance in the business community. Initially trading at US$1: ZiG13, the ZiG has managed to maintain its value against the United States dollar, exhibiting slight appreciation over a fort-night period.

However, the parallel market has experienced a significant depreciation of the ZiG, dropping from US$1:13ZiG to US$1: ZiG20. In response, the government has adopted a heavy-handed approach, vowing to crack down on illegal money changers through law enforcement agencies and imposing harsh fines.

Applying force as a monetary policy tool raises questions about its effectiveness in restoring accountability, confidence, and trust. Historical examples, such as Mussolini's regime and Nigeria efforts, have demonstrated the failure of using force to address economic issues. Instead, policy changes and focus on economic fundamentals are imperative for a functioning economy and currency.

The swift devaluation of the ZiG, amounting to a 20% decrease, can be reasonably understood considering the prevailing lack of trust and confidence in the monetary authorities. Back in 2016, when the Bond Notes were first introduced, the then governor of the Central Bank, John P Mangudya, claimed that they were supported by a sum of US$200 million from Afreximbank. Similar to the ZiG, the governor and the Bank assured citizens and the business community that there was no cause for concern regarding exchange rate fluctuations or inflationary pressures, as the Bond was intended to remain pegged at a 1:1 ratio with the American dollar. This declaration was met with celebrations, and the currency received endorsements through billboards. At that time, the Bond became the strongest currency in the Southern African Development Community (SADC), surpassing both the South African Rand and the Botswana Pula.

However, within a mere 30 days, the Bond suffered a drastic decline, trading at a rate of U$1:50 against the US dollar. In just six months, the Bond's value exceeded the 100 mark against the US dollar, leading to hyperinflation in Zimbabwe by 2019. In response, the government initially targeted money changers and later introduced SI127 of 2021 to penalize companies, resulting in significant fines for prominent businesses like National Foods. The government's efforts then extended to shops, small retail stores known as tuckshops, schools, and even pharmacies. Unfortunately, this approach proved ineffective, and by 2023, Zimbabwe was burdened with the world's worst currency, governorship, and inflation rate.

Consequently, people are aware that despite the supposed backing of US$200 million, the Bond ultimately failed. This failure has created concerns that the same fate may befall the ZiG, which is currently being praised in a similar manner and said to be backed by US$285 million. Rather than a new currency with a different name, what Zimbabwe truly requires is an entirely new system with revamped operations. It is the system itself that is undermining the stability of the currency. The government's latest attempt to crack down on money changers is an example of an approach that is likely to fail in preventing the ZiG's decline.

To rectify the situation, it is essential to address key economic factors through policy not police. Measures such as reducing electricity charges to scale up production, ensuring adequate power supply to mining operations, and reducing taxes on the mining sector can contribute to increased gold output.  Bolstering reserves, including both US dollars and gold, and implementing monitoring and accountability mechanisms for small-scale gold producers can enhance revenue generation through taxation.

Threatening street money changers fails to restore confidence and trust in the currency. The thriving parallel market is a consequence of basic economic principles, such as supply and demand, as well as the erosion of confidence in the banking sector due to past experiences of hyperinflation. Rather than relying on police enforcement, a comprehensive approach involving reorientation, policy changes, and improved policing strategies is needed to address the underlying issues.

The limitations of the ZiG currency further exacerbate the situation. It cannot be used to pay 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 limited availability in commercial banks leads citizens, particularly those without bank accounts, to resort to the black market. This flourishing parallel market is a manifestation of inadequate economic fundamentals and the coercive nature of economic and political policies.

To sustain the ZiG, reducing the demand for foreign currency is crucial. This can be achieved by granting licenses to small-scale miners, who contribute significantly to the country's mining output, and allowing them to pay taxes partly in gold and partly in ZiG. Similarly, facilitating the interchangeability of ZiG and US dollars for payments such as fuel and corporate taxes can create demand for the ZiG currency.

Implementing sound monetary policies is vital. Excessive printing of ZiG currency without corresponding economic fundamentals disrupts the supply of US dollars in the economy and devalues the currency. Living within the means of the government and avoiding coercive measures should be prioritized to rebuild public trust and market confidence. The black market fills the void left by the central bank's failure to address these issues adequately.

It is understandable that the public harbours doubts about the ZiG currency, given past experiences with failed monetary instruments like the Bond notes. Building reserves and establishing public trust require comprehensive policy enforcement rather than a reliance on police force. Historical examples, including the tenures of Gideon Gono and John Mangudya, demonstrate the ineffectiveness of such approaches. Furthermore, addressing corruption within the government and among the elite is crucial, as it contributes significantly to the loss of gold revenues and perpetuates the need for illegal money changers.

In conclusion, the recipe for failure lies in the government's adoption of coercive monetary policies. To achieve sustainable economic growth and restore confidence, a shift towards policy changes, economic fundamentals, and a comprehensive approach is necessary.

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