Harare and surrounding areas such as Chitungwiza and Epworth are currently grappling with a growing problem: a critical shortage of ZiG notes which are often used as change by the informal sector in these regions. This shortage is disrupting daily transactions and creating unintended consequences across the economy. Businesses, commuters, and everyday Zimbabweans are feeling the pinch as shops struggle to provide change and transport operators resort to unconventional solutions.

The situation is particularly acute in the transport sector. Commuter omnibus (kombi) conductors, who typically charge a fare of US$0.50, are now facing difficulties providing $20 ZWG change (the equivalent of US$0.50) when passengers pay with US$1. Desperate measures include conductors pairing passengers together and instructing them to find their own change, or simply shortchanging them outright which leads to conflict and inconvenience. Similarly, tuckshops and smaller vendors are also struggling, often resorting to giving out change in kind, such as sweets, matches, or other small items.

This crisis was not entirely unexpected. As we predicted last week on Zimpricecheck, the convergence of various economic factors has created a perfect storm, leading to the current ZiG change shortage. In this article, we will delve deeper into the causes of this shortage, explore its implications, and analyse potential solutions.

The USD Coin Conundrum: Why No Dimes or Quarters in Zimbabwe?

While the Zimbabwean government has officially authorised the use of a multi-currency system, the lack of readily available US dollar coins, particularly dimes (US$0.10) and quarters (US$0.25), exacerbates the change problem. The government has not exactly supported the use of the USD by making sure there are enough USD in circulation or by sourcing USD currency from the U.S. The U.S does also not formally support Zimbabwe’s multicurrency effort, although they have not exactly said they were against it.

The reasons for this shortage are rooted in the logistical and economic challenges of importing US currency into Zimbabwe. The US Federal Reserve and the United States Treasury do not directly support the use of the dollar outside of the US. Most of the cash you see in circulation is a result of private sector efforts. Companies, Banks and remittence companies often find a way to ship USD notes to Zimbabwe often via South Africa and other countries. Carrying cash to Zimbabwe is an expensive endeavour which involves the actual shipping costs as well as security costs.

Importing USD coins, especially smaller denominations, is simply not economically viable. Consider the weight and value equation:

• A dime is worth US$0.10 and weighs approximately 2.268 grams.
• To make US$100 in dimes, you would need 1,000 coins weighing a total of 2.268 kilogrammes.
• In contrast, a US$100 note weighs only about 1 gramme.

Therefore, shipping US$100 in dimes would cost significantly more than shipping US$100 in notes, due to the weight and bulk. This makes the importation of US coins impractical for banks and remittance companies like Mukuru, who prioritise the efficient transport of value. This is also why, as we have observed, these companies tend to deal primarily in US$10 notes and above, resulting in a scarcity of smaller US$1, US$2, and US$5 notes in general circulation. Try splitting a US$10 note in Harare CBD and you will understand what we mean.

It is worth noting that the informal markets, particularly in areas like Mbare, often have a higher concentration of smaller US dollar denominations due to the prevalence of small-value transactions. However, this is not sufficient to meet the overall demand for change across the broader economy.

Unpacking the ZiG Change Shortage: A Perfect Storm

The current ZiG change shortage is a result of several converging factors, primarily stemming from government policies and market dynamics. Here’s a breakdown:

1. Vendors’ Preference for ZiG Notes: As we detailed in our recent article, “Vendors now prefer ZiG notes to USD, due abitrage opportunities,” vendors are increasingly favouring ZiG over US dollars due to arbitrage opportunities. This article delves into how vendors are able to take advantage of the exchange rate differences between cash, electronic and the official rate to turn a profit.
2. Informal Demonetisation of Smaller Denominations: Despite repeated assurances from the Reserve Bank of Zimbabwe (RBZ), the public has largely rejected smaller ZiG denominations, particularly the $5 ZWG coins. This is not an unfamiliar dance, as we have observed before; the public often chooses to ignore the RBZ. The $10 ZWG note has effectively become the smallest denomination in circulation.
3. Government Policies Restricting ZiG Supply: The government, as the primary source of ZiG through salaries and payments to contractors, has tightened its spending in recent months. This has reduced the overall supply of ZiG in the market.
4. Increased Government Demand for ZiG: Simultaneously, the government has increased the demand for ZiG by mandating its use for certain payments, such as motor vehicle imports, taxes, and ZESA (electricity) tokens.
5. Arbitrage Opportunities: With reduced government spending and increased government demand for ZiG, coupled with the exchange rate falling, it has become increasingly cheaper to use the ZiG to settle debts. Those holding US dollars are able to obtain ZiG through the black market as an exchange rate of $30 ZWG per US$1, which is less than the official exchange rate. Therefore, hoarding has now become common practise.

Consequences of the ZiG Shortage: Disruptions and Distrust

The current ZiG change shortage has several potential implications for the Zimbabwean economy:

• Disrupted Transactions: Everyday transactions are becoming more difficult as businesses struggle to provide change, leading to frustration and inconvenience for consumers.
• Increased Reliance on Electronic Payments: The shortage may accelerate the adoption of electronic payment methods, even for smaller transactions, potentially excluding those without access to these technologies.
• Black Market Activity: As individuals and businesses seek to exploit arbitrage opportunities, black market activity could increase, potentially destabilising exchange rates.
• Inflationary Pressures: This can happen in two ways. For example research has shown that sellers and transport operators tend to charge US$1 instead of US$0.50 whenever there is a shortage as they prefer not to deal with the headache of dealing with change issues. Also if the government responds to the shortage by printing more ZiG, it could exacerbate inflationary pressures and undermine the currency’s stability. As we discussed in our previous article “the case for larger ZiG notes,” the denominations are too low for practical use.
• Distrust in the ZiG: The persistent arbitrage opportunities and fluctuating currency value could further erode public confidence in the ZiG.

Frequently Asked Questions

• What is arbitrage? Arbitrage is the practice of taking advantage of price differences for the same asset in different markets to make a profit.
• Why is there a shortage of ZiG notes? A combination of reduced government spending (less ZiG being released) and increased demand for ZiG (for taxes, ZESA tokens, and car imports) has created a shortage.
• What can be done to fix this problem? The government could increase the supply of ZiG notes, but they would have to do so carefully to avoid inflation. They could also try to reduce demand for ZiG, perhaps by allowing taxes and other payments to be made in US dollars.
• Is this going to cause hyperinflation? Not necessarily, but it could worsen the situation. Hyperinflation is caused by a loss of confidence in the currency, which could occur if people feel like they are being forced to use a currency that is losing value.