The Zimbabwean government, in its characteristic heavy-handed approach, has launched an aggressive campaign to defend the Zimbabwe Gold (ZiG) currency. With the Financial Intelligence Unit (FIU) leading the charge, retailers, manufacturers, black market traders, and even ordinary citizens have found themselves under scrutiny. While this crackdown has stabilised the ZiG in the short term, questions linger about its long-term viability.

The FIU’s Offensive

The Financial Intelligence Unit (FIU) in Zimbabwe is cranking up pressure on suppliers and manufacturers who aren’t accepting the new Zimbabwe Gold (ZiG) currency. In a bid to stabilize the economy, the FIU has frozen accounts belonging to businesses that refuse ZiG transactions. FIU director-general Oliver Chiperesa defended the forceful measures, saying they’re necessary for economic stability. Chiperesa explained that they started targeting manufacturers last week and froze the accounts of several companies. These companies paid fines and will be closely monitored to ensure they comply with ZiG regulations.

The rationale behind this crackdown is straightforward: by enforcing compliance among manufacturers, the government hopes to stabilise the volatile exchange rate and curb inflation. This approach follows recent raids on retailers, who have been at the forefront of the pricing regime and often blamed manufacturers for price manipulation.

Compliance or Coercion?

While the government touts these measures as necessary for economic stability, there is a fine line between compliance and coercion. Manufacturers have argued that they are simply charging prices that allow them to stay afloat amidst economic turmoil. An official from the Confederation of Zimbabwe Industries noted, “We are charging a price that allows us to continue producing. We can’t charge a price that will see us close shop again. There is a need to engage so that we can have a common understanding.”

The FIU’s actions, however, have been criticised as a form of harassment, imposing de facto price controls that could further stifle an already struggling industry. Analysts argue that targeting companies during an economic downturn, with numerous headwinds, is counterproductive and may exacerbate the very problems the government seeks to solve.

Black Market Woes

The crackdown has also extended to the black market, with over 500 foreign “currency manipulators” caught and penalised. The FIU has frozen 534 accounts and imposed hefty fines on 161 entities and individuals. Chiperesa explained, “Frozen bank accounts from January 1 to June 7 stand at 522. The reasons for freezing include traders found to be manipulating exchange rates, as well as where our routine transaction monitoring and analysis identifies bank accounts that are being misused for illegal foreign currency trading.”

One particular practice the FIU targets involves middlemen using multiple bank cards to facilitate illegal foreign currency transactions. These individuals accost customers in shops, offering to make purchases with ZiG cards in exchange for an agreed USD equivalent. Such activities, deemed “inconsistent with normal shopping behaviour,” have drawn the ire of the authorities.

The Rates Conundrum

Thanks to the government’s efforts, the exchange rates for ZiG have shown minimal movement. As of June 13, 2024, the ZiG Mid rate stands at 13.4839, with the ZiG BMBuy at 14 and the BMSell at 18. These rates have remained relatively stable, leading some to hail the efficacy of the government’s strategy.

Using security services to prop up the ZiG will be hard to maintain in the long run. The fundamental issue lies in Zimbabwe’s heavy reliance on imports for basic goods, necessitating a substantial amount of foreign currency. Moreover, there remains no legal way to convert ZiG to USD, as banks continue to absorb USD without selling it back to the public. This bottleneck in currency conversion poses a significant challenge to the ZiG’s viability.

Short-Term Gains, Long-Term Pains?

In the short to medium term, the government’s aggressive stance may yield some positive outcomes. Increased compliance among manufacturers and suppliers could stabilise prices and reduce inflationary pressures. However, the long-term sustainability of these measures is highly questionable. Zimbabwe’s economy is marred by structural issues that require more than just punitive actions to resolve.

The lack of a legal framework for converting ZiG to USD remains a significant obstacle. Without addressing this fundamental issue, the government’s efforts may merely provide temporary relief rather than a lasting solution. Moreover, the coercive nature of the FIU’s actions risks alienating businesses and stifling economic growth.

Conclusion

Zimbabwe’s aggressive defence of the ZiG currency, while potentially effective in the short run, faces significant challenges in the long term. The government’s crackdown on retailers, manufacturers, and black market traders underscores its commitment to stabilising the economy. However, without addressing the structural issues and providing a legal avenue for currency conversion, these measures may ultimately prove unsustainable.