Why ZiG cannot immediately replace USD transactions

12 Apr, 2024 - 00:04 0 Views
Why ZiG cannot immediately replace USD transactions Mr Guvamatanga

eBusiness Weekly

Nelson Gahadza

Treasury has said the newly introduced structured currency, Zimbabwe Gold (ZiG), will not immediately be used to buy fuel and make international payments until the dollarisation ratio reverses in favour of the new money.

Many Zimbabweans had expected the new currency to be accepted to pay for various goods and services currently being sold exclusively in US dollars, including fuel.

Experts have highlighted that once fuel is not priced in the ZIG, people will begin to chase the black market again to get US dollars to buy some commodities exclusively sold in United States dollars.

Social media has also been critical to say that if this currency does not buy fuel or does not pay for a passport, then it’s not a strong currency, or maybe it’s not a usable currency.

“We just need to go back to the journey that resulted in us using the multi-currency currency. It was an agreed position between Government and industry and that is why industry is also using the US dollar as we speak today.

“But, more importantly, what we have done with the currency is one major milestone towards de-dollarising it.

“We should be talking in a fully de-dollarised environment, and this is one milestone that we have taken, and the journey takes us up to 2030.

“Therefore, within that journey, there will be a point where fuel will be fully sold in ZiG and there will be a point where all duties will be payable in ZiG and not even at 50 percent,” said Finance, Economic Development, and Investment Promotion permanent secretary George Guvamatanga at the monetary policy statement breakfast meeting on Tuesday.

He added that within that journey, there will be a point where all government ministries, departments and agencies are actually forced to accept the ZiG currency.

“We are working on a circular to all governments, ministries, departments, and agencies that they cannot insist on payment in US dollars. This is part of the journey, but we cannot call for action today, which indicates that we have de-dollarised and are still in a multi-current system. It is a journey,” he said.

Guvamatanga said that over the course of the past two months, the RBZ has reiterated the need to create a strong and stable currency.

Expert in trade and investment facilitation and former Minister of Economic Planning and Investment Promotion during the Government of National Unity, Tapiwa Mashakada, said the first challenge is to make sure that the use of the ZIG is increased and reduce the dollarised transactions that are characterised in the market at around 90 percent.

“That is the mischief we must cure to promote the circulation of the ZIG so that people do not suddenly have to resort to dollarisation.

“In this regard, ZiG must buy fuel because that is our local currency; if not, that is where the problems start.

“Once fuel is not priced in the ZiG, people will begin to chase the black market again to get US dollars,” he said.

He noted that when the US dollar is still in circulation as a legal tender, operating alongside the ZiG and wanting to strengthen it, there will always be problems.

“The existence of the local currency and the US dollar at the same time will create those arbitrage opportunities that have always dominated the financial sector in the past,” said Mashakada.

However, RBZ Governor Dr John Mushayavanhu said de-dollarising the environment is a gradual process.

“Right now, we are in a situation where plus or minus 80 percent of the transactions in this economy are being done in US dollars and plus or minus 20 percent in ZIG.

“So if you look at it that way, in the pocket of everyone, as an average, we expect to find 80 cents US and 20 cents ZiG equivalent.

“Therefore, what we have done is, first of all, create demand for ZiG in the form of the 50 percent quarterly payment date (QPD) payment,” he said.

He added that as we approach the June QPD, everyone is going to be looking for ZiG, and all the ZiG in this market is not enough to meet 50 percent of payments.

“So the moment you do that, for example, if people do not take it up until the next QPD and then they have to buy ZiG very quickly in July at an expensive price, by the time we get to September, the market will have corrected itself.

“And you see people, when a retailer has sold their goods, they would rather keep the ZiG and maybe do certain things with the USD, because they know they are going to need that ZIG come the next QPD.”

Dr. Mushayavanhu noted that as the economy is at an 80-20 percent ratio now, when we get to 70-30, certain things will also be allowed to happen, then gravitate towards ZIG. When we get to 60–40, more towards ZIG, and by the time we get to 50–50, you can do what you want.

But economics professor Gift Mgano, posting on his X handle, said the government has scored its own goal by allowing exclusive use of the US dollar at the fuel stations.

“The decision by the government to allow exclusive use of USD at the fuel stations is the biggest mistake,” he said.

Meanwhile, Dr Mushayavanhu also noted that the acceptability of ZiG outside of Zimbabwe is something that takes a bit of time but might actually be more or less within the country’s neighbouring countries because of the interrelatedness and the trade relations.

“If someone brought a Zambian Kwacha here, would you accept it? So, that is the same story. But, going forward, as people become more and more confident in ZiG and see that it is a stable currency and easily convertible into any other foreign currency, it would be acceptable, starting with our neighbours and maybe even beyond. But let’s take one step at a time,” he said.

He said that in the meantime, ZiG is now transacting on debit cards in the country, but putting it on MasterCard could be something that would come much later.

Economist Dr Prosper Chitambara said the MPS provides new hope and optimism that we can break from the mistakes of the past and be able to chart a new course forward in terms of the macroeconomic reform agenda.

“What we need to do as an economy and as stakeholders is to protect ourselves from the demon of macroeconomic instability and the chronic high inflation trends that the economy is facing,” he said.

Zimbabwe National Chamber of Commerce (ZNCC) president Mike Kamungeremu said, apart from just defending the local currency, most government fees should be collected in the local currency.

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