Online Reporter
The ZiG is now generally considered, outside the tuck shops, public transport and still much of the fuel sector, an acceptable currency that is solid and stable, and is being used more and more.
The new ZiG banknotes are being considered ever more practical small change, filling a serious gap.
While the black market still exists, it is on an ever smaller scale and mainly works on electronic transfers rather than using bricks of ZiG notes, removing one worry that some had when the new ZiG10, ZiG20 and ZiG50 notes were introduced.
The Reserve Bank of Zimbabwe (RBZ) is carefully drip-feeding more ZiG banknotes into the economy, so no bank customer entitled to withdraw ZiG notes within some very generous limits has ever been refused notes.
But the total so far issued amounts to just 3 percent of total ZiG deposits, showing people still prefer using cards, mobile phone systems and other electronic means of payment rather than blocks of ZiG notes.
Where the ZiG notes are used, they tend to be for very small payments, which is what they were intended for, as a back-up, rather than replacement, for electronic transfers. This puts Zimbabwe into the modern world as a near-cashless society, but with a bit of cash where the bother of a small electronic transfer is a time-consuming nuisance.
Most businesses in the formal sector now accept ZiG and so acceptable is the currency that the largest supermarket chain, responsible for possibly half or even more of all groceries sold in Zimbabwe, recently cut its exchange rate from ZiG32 to US$1 to ZiG30, a trifle above what the banks sell US dollars for.
That in turn implies that formal retailers having to pay foreign suppliers can now simply apply at their bank and see the foreign currency payment go through rapidly.
This allows retailers to use more of the US dollars they take at tills for the sort of luxuries that banks might balk at.
That in turn is the result of the major change in the Zimbabwean economy over the past months since October last year, with Zimbabwe now exporting more than it imports, giving the first positive balance of trade for many years, even as diaspora remittances continue to supply the foreign currency largely circulating outside the formal banking sector.
So the complaints from the productive sectors these days are not about foreign currency, but more about still high interest rates that borrowers have to pay and tight liquidity, as no one is creating ZiG faster than economic growth.
RBZ, with Government backing, has been maintaining a highly conservative monetary policy to back the equally conservative Government fiscal policy.
That policy sees Government spend slightly less than it gathers in taxes and fees, giving it a small reserve to cope with sudden emergencies and even to moderate fuel price rises, as we saw recently.
More importantly, there is no overhanging Government overdraft, so no temptation to move away from conservative policies.
The continued growth of the national gold and foreign reserves held through RBZ, now well over a month and a half of imports, has also ensured that the ZiG is properly backed.
That in turn means RBZ can start performing the function of buffering wild fluctuations in exchange rates and simply maintain whatever the underlying trend is, which incidentally means that fluctuations are even less likely as everyone knows they will not work.
This is one of those positive feedback loops that we are seeing more and more of.
The combined conservative fiscal policy of the Ministry of Finance, Economic Development and Investment Promotion with the conservative monetary policy of the Reserve Bank, and the growth in reserves, have between them ensured that Zimbabwe has a decent local currency, and that is considered a major goal of both authorities.
We still need now to build progress in ZiG acceptability in the fuel sector, pharmacies, the informal sector and independent public transport operators, but the first signs are appearing.
Some service stations have started accepting ZiG, at least from recognised customers for small orders of fuel. The informal sector and kombis now accept ZiG not just using this currency as a placeholder for 50 cents.
Some kombi operators on competitive routes with spare seats in off-peak periods will take ZiG for a full fare, although the effective exchange rate of ZiG40 to US$1 is a bit horrific.
Pharmacies are still tied to one or two major suppliers of products, both local and imported, which apparently want foreign currency, although one would assume that these suppliers’ bankers would supply foreign currency for raw materials and registered medicines without a murmur.
Perhaps too many pharmacies also sell luxury goods like perfumes and special imported consumer products and so are reluctant to switch to ZiG.
While the retail end of this sector is exceptionally competitive, we seem to need more competition at the originating end, and here the Government’s determination to see a lot more local pharmaceutical manufacture will produce this as a useful by-product.
But all in all, our very careful RBZ, with the backing of Government now paying local contracts in local currency, seems justified in its summation that there is a steady erosion of the dollarised economy, ever-growing acceptance of ZiG and all without the ill effects that were the bane of past local currencies.
