According to social media reports a black market foreign dealer known as Lardmio is among the scores of Zimbabwean dealers currently in custody. His crime? On Independence Day, 18 April, the dealer was approached by undercover police officers. They had US$10 and wanted ZiG airtime. The dealer sold the airtime and gave the officers airtime worth 130 ZiG. Using the official rate he was supposed to give the officers 133.437 ZiG worth of airtime. For this, he was arrested and missed his wedding. It seems the Zimbabwean government seems determined to prop up the newly launched ZiG currency, but their methods raise concerns about its long-term viability.
A Familiar Response to a Complex Problem
Following the introduction of the ZiG currency on April 8th, 2024, the official exchange rate held steady at US$1: ZiG$13.56. However, the black market tells a different story, with the ZiG already trading as high as US$1: ZiG$20. In response, the government has cracked down on money changers, arresting 65 individuals and freezing the bank accounts of 11 companies not using the ZiG.
This isn’t the first time Zimbabwean authorities have resorted to such tactics. Similar measures were employed with the Bond Notes in 2014, which ultimately failed to curb inflation or stabilize the economy.
Why Force Won’t Work
History suggests that a forceful approach to monetary policy is ineffective. Here’s why:
- Undermines Trust: Coercive tactics erode public confidence in the currency and the government’s ability to manage the economy.
- Focuses on Symptoms, Not Causes: The black market thrives due to a lack of trust in the official system and limited access to foreign currency. Addressing these underlying issues is crucial.
The Real Problems Plaguing the ZiG
Several factors contribute to the ZiG’s early struggles:
- Limited Use: The ZiG cannot be used for essential services like fuel or medicine, forcing people to the black market for US dollars.
- Past Hyperinflation: Zimbabweans have fresh memories of economic collapse, making them wary of a new currency.
- Doubts About Backing: Similar to the Bond Notes, the ZiG’s supposed gold backing lacks transparency.
The Path to a Stable Currency
Zimbabwe needs a multi-pronged approach to achieve economic stability:
- Sound Economic Policies: Measures to boost production, reduce government spending, and control inflation are essential.
- Transparency and Accountability: The government must rebuild trust through clear communication and demonstrably fair practices.
- A Functional Banking System: Increasing access to financial services will reduce reliance on the black market.
Conclusion
The Zimbabwean government’s heavy-handed tactics are unlikely to save the ZiG currency. Only by addressing the root causes of economic instability and fostering public trust can Zimbabwe achieve lasting economic recovery.
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