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The exceptional stability of the ZiG over its first three months, with the accumulative total of very small daily movements up and down in the bank rates as sellers and buyers of foreign currency are matched totalling almost zero, has now seen President Mnangagwa wanting progressively ever more internal transactions in the new currency.
The goal remains the same, that Zimbabwe moves towards a single national currency for internal transactions, with foreign currency just used for international transactions and trade.
As the ZiG starts dominating the local markets, the President saw the time coming when the multi-currency system, at least for ordinary local transactions, would be ended, and Zimbabwe would join almost all the rest of the world in having day-to-day business done in its own currency exclusively, and those with foreign currency having to stop at a bank or bureau de change before going shopping.
With the progress already seen, he thought this change over could come within two years, perhaps a little less, but did set the conditions of acceptability of the ZiG within Zimbabwe and the progressive increasing use of the local currency, when the changeover would be largely automatic and the final legal change essentially painless.
So speaking during the commissioning of the new fruit juice processing factory in Mutare, associated with the Mutare Teachers College, the President brought up the need to reinforce the successes of the ZiG by using it more and more.
When the ZiG was introduced almost exactly three months ago, Zimbabwe had drifted towards using foreign currency, basically the US dollar, for an estimated 80 percent of local transactions by value.
Since penetrating the informal sector and non-declared rent income is extremely difficult, it was a good ballpark estimate based on very high use of US dollars in the informal sector plus the more accurate figures based on VAT returns within the formal sector.
Since then retailers have noted a growing use of ZiG among their customers, but warned that some manufacturers were charging in US dollars for most if not all their orders.
The Reserve Bank of Zimbabwe wanted details of this illegal behaviour and presumably retailers are feeding in the data.
Shortly after the ZiG introduction, there was a determined assault on the black market.
The action against the street dealers, many acting as agents of others with capital, was the most noticeable with a wave of arrests and the rest making the sensible decision to stay off the streets.
But the Reserve Bank’s Financial Intelligence Unit has also gone after the big-time dealers and has frozen suspicious bank accounts and been imposing civil penalties, and as these are not being appealed the correct targets are being hit.
There is still some black market dealing, but large sums are no longer being moved easily, thanks to the FIU keeping its eyes wide open.
The black market can be a major source of pressure, since dealers had an interest in manipulating exchange rates. The decline of the black market has helped keep ZiG and US dollars in separate baskets, with the banks running the transactions between the two, rather than criminals.
A fundamental reason for ZiG stability was the decision to back the currency with the gold and foreign currency reserves at the Reserve Bank.
These had been built up by the earlier decision to retain half of the mining royalties in the reserves, rather than spending everything. So at the launch there were 2,5 tonnes of gold in the vaults, about a two-to-one cover for ZiGs in circulation, and foreign currency proving another 100 percent cover. Reserves will rise as royalties are paid.
The other reason for ZiG stability has been the falling deficit in the balance of trade, in other words a decreasing gap between the income from our exports compared to the payouts for imports.
The current account, which measures inflows of foreign currency against outflows, has been positive for most of the Second Republic, with net diaspora remittances more than covering the trade deficit and investment inflows being a growing bonus.
With petroleum imports for private-sector use, the largest single import, largely funded from non-trade inflows there are enough export earnings to fund the rest of the imports via the commercial banks.
As the trade deficit continues to narrow the day will come when petroleum imports can be funded fully via the commercial banks and so full ZiG use.
At that stage those receiving diaspora payments will visit their bank or legal dealer before shopping so reinforcing the supply of foreign currency to the bank markets.
The Ministry of Finance, Economic Development and Investment Promotion has been working with the Reserve Bank to track down all running taps that were fuelling money supply not based on actual value, and between them they have switched them all off.
Money supply can now only grow as reserves rise, and that is basically in line with economic growth which is where it should be, and in fact must be.
So President Mnangagwa was not being unrealistic in his projections. The bits are in place and the sort of timescale he was looking at gives time for growing acceptability of the ZiG.
There are legal guarantees over some dual use of currencies lasting until 2030, largely concerning for practical purposes bank loans denominated in foreign currency, but these do not prevent a full or near-full transaction economy in ZiG.
That switch will in itself add to stability, removing manipulators via the system rather than direct action. Zimbabwe is odd in having a multicurrency economy.
There were reasons dating from the days of hyperinflation for this. But with a respectable local currency, we can now move towards a normal and fundamentally stronger economy.
Online Reporter