- ZiG has appreciated 1% week-on-week, maintaining stability on FM
- ZiG is claimed to be backed by US$285 million in reserves, but has suffered a 36% decline on the parallel market, trading at 21 ZiG per US$
- Government's heavy-handed crackdown on PM will fail, as inadequate USD supplies in banks force people to use the black market
Harare- Zimbabwe Gold (ZiG) has sustained stability after gaining 1% on the formal market (FM) rate, which is being pegged by the government. The ZiG traded at ZiG13.3976 on May 17, 2024, from ZiG13.5326 in the prior week, sustaining the 13 region against the US dollar for more than four weeks now.
ZiG is claimed to be backed by reserves of US$285 million, consisting of US$100 million in reserve cash and 2.5 tonnes of gold valued at US$185 million.
However, despite the claimed reserves and formal market stability, the government has failed to maintain the stability of the ZiG on the Parallel Market (PM) -the one determined by market forces, where it holds almost zero percent control.
The ZiG has suffered a 36% decline on the parallel market, falling from 13 per dollar within a month to 21 per dollar.
Instead of making it easier for the public to obtain US dollars through the banks rather than the black market, the government has resorted to lethal force. It has turned to shutting down banks, shops, and arrested street agents.
The government has even passed a new statutory instrument, SI 81A of 2024, which penalizes ZiG200,000 for indexing prices above the pegged official rate.
However, the government is missing the bigger picture here as it continues treating the back instead of treating the underlying diarrhea.
The heavy-handed crackdown is only exacerbating the economic instability rather than addressing the root causes.
Because the US dollar still constitutes the major payments for basic commodities in Zimbabwe, including fuel, licenses, passports, capital goods, apparel, and cellphones, people have to convert their ZiG to US dollars on black market as the banks have inadequate US dollar supplies to give to importing companies, let alone basic individuals.
This increased demand for US dollars on the black market has inflated the ZiG exchange rate from 13 to 21 per US dollar. This is now a market-force driven exchange rate, determined by the economic forces of supply and demand.
The government's heavy-handed crackdown on the parallel market has once failed and it will again fail. The banks' inadequate US dollar supplies mean people have no choice but to turn to the black market to obtain the greenback.
In order to offset such a market imbalance, you don't fight it physically. Instead, you inject the required US dollars into the market, make it easier for the public to access US dollars, and widen the reach of the ZiG currency by enforcing fuel stations to accept ZiG, requiring passport fees to be paid in ZiG, and requiring licenses to be purchased in ZiG among major basic goods and services.
However, because the government does not have enough foreign currency reserves, which we believe are even lower than 2.5 tonnes of gold given the lower gold output in 2023, the introduction of gold-backed tokens minted with actual gold and given that the collection of mineral reserves started barely 19 months, the government cannot afford to fight the parallel currency market and must rely on rhetoric instead.
Further reflecting government’s lack of trust in ZiG and hunger for US dollars, it has publicly denied allowing the payment of passport fees using the ZiG currency, which it expects the public to accept.
This shows the ZiG currency to be the most ill-fated gamble introduced by the government, worse even than the Bond Note or failed ZWL.
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