Zimbabwe’s ZiG currency risks extinction stoked by policy choices

By Ray Ndlovu / Bloomberg

HARARE: Zimbabwe’s bullion-backed currency is heading for failure because policy mistakes have pushed it to the sidelines, according to the country’s oldest independent brokerage.

“The ZiG is fast going into extinction,” Imara Asset Management chief executive officer John Legat and chief investment officer Shelton Sibanda wrote in a note to clients.

Its demise won’t be due to the rapid devaluation that doomed Zimbabwe’s previous efforts to establish a local currency, “but through irrelevance,” they said. A liquidity squeeze, now in its sixth month, is seen crippling the ZiG.

They estimate that 80% of transactions in the southern African nation are being conducted in dollars, while payment in rand also accounts for a share of payments.

The ZiG, short for Zimbabwe Gold, is the nation’s sixth attempt at standing up a functional currency since 2009. It’s backed by bullion and foreign currency reserves held by the central bank.

Since its introduction more than a year ago, the authorities have struggled to convince Zimbabweans that the ZiG will succeed and its value has slumped.

Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe’s monetary policy committee, said ZiG liquidity is only tight in the parallel market and the unit is readily available in the formal banking system.

“It’s not extinction of ZiG, but unwinding of US dollar positions into the local currency that’s next and will help release credit into the economy,” Gwanyanya said on Tuesday in response to a request for comment on the Imara report.

While the central bank has sought to shore up the ZiG and curb inflation by raising interest rates, that’s pushing consumers to use dollars, according to the Imara executives. Monetary policy won’t fix Zimbabwe’s problems and the government needs to generate more revenue and control deficit spending to get the economy on track, they said.

The authorities should considering abandoning the ZiG, the Imara executives said.

“It would be better simply to scrap it and move on.”