The recent devaluation of Zimbabwe’s gold-backed currency, the Zimbabwe Gold (ZiG), continues to send shockwaves through the economy. In a meeting with the Reserve Bank of Zimbabwe (RBZ) on Tuesday, bankers expressed concerns that mirror the chaotic scenes unfolding across the country’s informal sector. This development comes as our latest survey reveals a widespread rejection of the ZiG in favour of the US dollar, marking a critical juncture in Zimbabwe’s ongoing currency crisis.

Bankers’ Concerns Align with Market Realities

The Bankers Association of Zimbabwe (BAZ) raised several key points in their meeting with the RBZ, echoing many of the issues we’ve observed in the market:

Price Hikes and Weakened Confidence: Bankers warned that last week’s steep ZiG devaluation would lead to price increases and erode confidence in the currency. This prediction has already materialised, as we reported in our article on chaos in supermarkets, where consumers faced sudden price adjustments and abandoned shopping carts.
Economic Slowdown: The increase in interest rates and statutory reserve requirements, part of the RBZ’s sweeping monetary policy changes, is expected to slow down economic growth. This aligns with our analysis of the potential impacts on various sectors, including reduced lending capacity and higher borrowing costs.
Informal Sector Impact: Bankers highlighted that restricting the amount of USD that individuals can take out of the country may hurt informal sector jobs and cause shortages. This concern is particularly relevant given our recent observations of the informal sector’s struggles to adapt to the new economic reality.

Widespread Rejection of the ZiG

Our latest market survey reveals a troubling trend: large swathes of the informal sector are now rejecting the ZiG outright. This development marks a significant escalation from the initial confusion we observed immediately following the devaluation, where different exchange rates were being used across the sector.

Key observations include:

USD Preference: Traders, from street vendors to tuckshop operators, are increasingly insisting on USD payments. This shift leaves many Zimbabweans who hold ZiG in a precarious position, unable to conduct basic transactions.
Transport Sector Shifts: Some commuter omnibus routes that previously charged ZiG10 now demand US$1, reflecting a complete abandonment of the local currency. Passengers are being forced to pair up and exchange ZiG among themselves at informal rates, sometimes as high as ZiG15 per US$0.50.
Pricing Uncertainty: Tuckshop operators express difficulty in determining appropriate exchange rates, leading to a reluctance to accept ZiG due to fears of further devaluation.

This widespread rejection of the ZiG is not occurring in isolation. As we noted in our analysis of the ZiG devaluation’s effects on the economy, the sudden change in exchange rates has led to significant challenges for both businesses and consumers. The informal sector, which plays a crucial role in Zimbabwe’s economy, has been particularly hard hit.

Government’s Role in Undermining Confidence

Critics argue that the Zimbabwean government has played a significant role in undermining confidence in the ZiG from its inception. Notable issues include:

Essential government services, including passport applications and customs duties, do not accept ZiG payments.
Key commodities like fuel are priced exclusively in USD.
Rentals and other significant transactions are often conducted in foreign currency.

This apparent lack of faith in the ZiG by the government itself has sent a clear signal to the public about the currency’s stability and reliability.

Economic Implications

The widespread rejection of the ZiG has several immediate and potential long-term implications:

De Facto Dollarization: The economy may shift further towards dollarization as businesses and individuals seek to protect themselves from currency volatility.
Increased Economic Hardship: Those holding ZiG savings or receiving ZiG salaries may find themselves increasingly unable to conduct daily transactions.
Potential for Hyperinflation: If confidence in the ZiG continues to erode, there’s a risk of rapid inflation as people rush to convert their holdings to more stable currencies.
Impact on Government Operations: The government’s ability to collect taxes and fund operations in local currency may be severely compromised.

These implications align closely with the concerns raised by bankers in their meeting with the RBZ, underscoring the gravity of the situation.

Frequently Asked Questions

Q: Is the ZiG still legal tender in Zimbabwe?
A: Yes, the ZiG remains legal tender. However, its acceptance in the informal sector has decreased significantly following the recent devaluation.

Q: Can I still use ZiG for government services?
A: Many essential government services, including passport applications, require payment in USD. It’s best to check with the specific government department before attempting to pay with ZiG.

Q: How are formal businesses handling the currency situation?
A: Many formal businesses, including supermarkets, have adjusted their prices to reflect the new exchange rates. Some are offering discounts for USD payments while charging premiums for ZiG transactions.

Q: What should I do if I hold significant ZiG savings?
A: Given the current volatility, it may be prudent to diversify your holdings. Consider consulting with a financial advisor for personalised advice.

Looking Ahead

The current rejection of the ZiG in the informal sector, coupled with the concerns raised by bankers, presents a significant challenge for Zimbabwe’s economic stability and the credibility of its monetary policy. The situation underscores the need for comprehensive measures to restore confidence in the local currency and stabilise the economy.

As we previously argued, introducing larger ZiG denominations could be one step towards improving the currency’s usability and perception. However, this alone will not address the fundamental issues of confidence and stability that are currently plaguing the ZiG.

At Zimpricecheck, we remain committed to providing timely and accurate information as this situation unfolds. We encourage our readers to stay informed and consider the potential impacts of these currency developments on their financial decisions. Continue to check our website regularly or subscribe to our WhatsApp channel for real-time updates on currency exchange rates, prices, and economic developments.