• ZiG has surpassed South African Rand, Pula, and other regional currencies in trading strength within the SADC region
  • Lack of convertibility raises concerns about ZiG's market-determined exchange rate and its limited usability beyond Zimbabwe's borders
  • Despite initial stability, ZiG depreciates by 35% in four weeks, prompting government efforts to curb money changers

Harare- Zimbabwe's currency, Zimbabwe Gold (ZiG), has emerged as the strongest currency in the Southern African Development Community (SADC) region. It traded at ZiG13.4190 per dollar, surpassing the South African Rand, Pula, and other strong regional currencies.

This recent trade on May 5th represented week-on-week gains from ZiG13.4218. Introduced by the Zimbabwean government on April 5th, 2024, ZiG has maintained stability in the formal market.

The Botswana Pula is the only currency that comes close to ZiG, trading at BWP13.6 per dollar but still trailing behind. The South African Rand is trading at ZAR18 per dollar, while the Zambian Kwacha is much lower at 26 per dollar.

However, unlike ZiG, these currencies have exchange rates that are not fixed and are convertible. They can be deposited in banks both regionally and internationally, allowing for seamless trade. On the other hand, ZiG lacks convertibility and is limited to its own territory. The biggest issue is that it has a fixed rate, as evidenced by a 35% depreciation observed on the parallel market, where it is trading at ZiG20 per dollar.

The parallel market is not fixed and is therefore determined by economic forces. A premium of over 20% within just a month is absurd when considering that the ZiG formal rate is not fixed.

It is important to note that Zimbabwe's newly introduced currencies often start off strong as their rates are fixed, but they lose value over time because you cannot legislate the value of a currency forever.

In 2016, when the Bond Notes, similar to ZiG and backed by US$200 million in reserves, were introduced, President Emmerson Mnangagwa praised them as the strongest in SADC.

However, these currencies were only recognized within the country and had no significance beyond its borders.

The lack of convertibility raises questions about whether the government's exchange rate is market-determined or pegged. Looking at the parallel market, ZiG has depreciated by 35% in just four weeks, going from 13 per dollar on April 5th to the current black-market rate of 20 per dollar.

The government's attempts to combat money changers by employing police force have proven unsuccessful, as they only address the symptoms while the underlying issue persists.

The key solution lies in providing greater accessibility to US dollars for the ordinary citizens. As long as people cannot easily obtain US dollars from banks, the street agents will continue to thrive.

Money is commonly understood as a medium of exchange that should be universally accepted in transactions, serve as a store of value, and function as a unit of account.

However, the ZiG despite being the strongest fails to fulfill these criteria. This is evident from the fact that Zimbabweans often convert the ZiG into other currencies such as the South African rand or the US dollar, which are regarded as more reliable stores of value and mediums of exchange.

Moreover, the ZiG cannot be used outside Zimbabwe to obtain foreign currencies, and it is insufficient for purchasing fuel, paying for licenses or passports within the country.

Even taxes cannot be paid with the ZiG, requiring individuals and economic agents to convert it into US dollars. These limitations demonstrate that the ZiG does not meet the fundamental characteristics of money.

Therefore, the idea of the ZiG being the strongest currency in the region remains theoretical rather than practical.

To address this issue, the Zimbabwean government should accept the ZiG as a valid form of payment for taxes, fuel, passports, and other fees though it needs to be a gradual process.

By doing so, it would create a demand for the currency and reduce dependence on the US dollar.

Additionally, creating a politically favourable economic environment, promoting production to reduce the import bill, implementing transparent policies, and ensuring fiscal responsibility are crucial steps towards improving the ZiG's functionality.

As of now, while the ZiG may be considered strong in theory, its practical usefulness remains severely limited compared to other currencies in the region.

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