Stability of ZiG critical to reduce demand for use of US dollar

The stability of Zimbabwe’s local currency, the Zimbabwe Gold (ZiG), is critical if the country wants to reduce demand for the use of the United States dollar.

Zimbabwe is currently using a multi-currency system but this is dominated by the United States dollar which accounts for 85% of transactions.

It phased out its local currency, the Zimbabwe dollar, after it lost more than 70% of its value in three months and introduced a new gold-backed currency on 5 April.

The ZiG has held its ground since it started trading on 8 April. It kicked off at 13.5616 to the United States dollar and hit a high of 13.2517 on 24 April before sliding to a low of 13:6757 on 6 May. It stood at 13:4097 today.

Ther currency is, however, dogged by lack of trust in the local currency with the black market rate set at between 14 and 20 to the greenback.

The government has introduced legislation forcing one exchange rate, the market determined rate on the interbank market.

Finance Minister Mthuli Ncube said the government had plans to increase the use of the ZiG but the first thing was to make sure that the exchange rate was stable.

“When we say stable in exchange rate language, we mean stable within reason. It means that we maintain stability. Once the currency has a track record in stability, it becomes more acceptable as a transacting currency and also as a store of value and as a currency in which citizens can make their savings in investments,” Ncube toldParliament today.

“So, the first order of business is stability. To accompany that, we need to increase the use of the ZiG through creating super demand for it by basically legislating that certain taxes and fees from Government should be paid in the local currency. 

“We are working on that and we will be announcing as to which taxes (are) paid only and solely in ZiG currency. Creating that demand is critical and gradually, you will see the demand of the ZiG increasing, but what is really important is the stability of the currency. That way, the currency really gains credibility through that stability track record.”

The Reserve Bank of Zimbabwe has set gradual targets to reduce use of the United States dollar and is happy if use of the ZiG could increase to 30% of the transactions by end of this year rising to 40% next year and 50% in 2026.

Central bank governor John Mushayavanhu says once the country hits 50% of the transactions in local currency there will be no more need to worry because people will now have confidence in the logical currency.

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