Zimbabwe central bank governor John Mushayavanhu says people will soon be scrambling for the country’s new currency, ZiG, and as the currency continues to strengthen against the United States dollar he fears the country could plunge into deflation.
The ZiG, which was introduced a week ago, has appreciated from 13.5616 on Monday to 13.4178 today, reversing a trend which saw the local currency plunge by about 70% in the first three months of this year.
Mushayavanhu said he was surprised by demands that people should be able to buy fuel and pay for government services in ZiG saying this was a denial of the reality that 80 to 85% of the transactions in the country were in United States dollars.
He said the local currency in circulation was worth only US$80 million. It was therefore not enough to meet the country’s fuel needs.
Zimbabwe is currently using a multi-currency system up to the end of 2030.
The new currency, which is still electronic as notes and coins will be introduced at the end of this month, is already under siege and is trading at 17:1 to the United States dollar.
Mushayavanhu said he did not see the logic in those buying the US dollar at that price as foreign currency was readily available at banks for any legitimate use.
When asked whether the ZiG would not go the same way that other local currencies introduced by the central bank had gone, Mushayavanhu said there would soon be a hunt for the ZiG as the government is creating demand for the currency.
He said there is going to be huge demand for the local currency when companies pay their quarterly tax payments at the end of June.
Mushayavanhu said these taxes normally bring in US$300 million. With only US$80 million local currency in circulation, companies would have to buy ZiG from the central bank to meet their tax demands thus creating demand for the local currency.
Mushayavanhu said there would be no exemptions this time, implying that the government will insist that half the taxes be paid in ZiG.
Asked whether he will not succumb to political pressure to print money, Mushayavanhu said there would be no such pressure as the central bank is independent by statute. He said contrary to popular belief that the central bank had been lending money to the government, his investigations before he took over the post showed that there had been no such thing.
On how he would get people to gain confidence in the local currency, Mushayavanhu said confidence could not be legislated. His actions will earn the people’s confidence.
“Right now our currency usage is 85-15 (US dollar to ZiG). I would be quite happy if we can achieve 70:30 by the end of the year. Maybe next year we could move on to 60:40 and 50:50 the following year,” the central bank governor said.
Once the country attains 50:50, people would now have confidence in the local currency as they can trade in either currency, he said.
See Mushayavanhu’s interview with ZTN here.
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