Price stability a prerequisite for successful de-dollarisation

YESTERDAY marked a year since the Reserve Bank of Zimbabwe (RBZ) announced the introduction of the Zimbabwe Gold (ZiG) currency, with banks being directed to commence converting all existing Zimbabwe dollar balances to ZiG.

Our Senior Reporter DEBRA MATABVU interviewed RBZ Governor DR JOHN MUSHAYAVANHU, who shared his insights into the currency’s performance over the past year, as well as his vision for the role of ZiG in Zimbabwe’s long-term growth.

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Q: In your inaugural Monetary Policy Statement on April 5, 2024, you introduced the Zimbabwe Gold (ZiG) currency. In your opinion, how has ZiG performed over the past year and has it achieved the desired targets?

A: At the launch of the ZiG currency on April 5, 2024, I made a firm commitment to ensure price, currency and exchange rate stability to engender certainty and predictability in monetary and financial affairs.

I am pleased that the Reserve Bank has walked the talk on its firm commitment, as evidenced by the ongoing stability of prices, the currency and the exchange rate.

Of course, the economy experienced some turbulences around August and September 2024, which witnessed extreme exchange rate pressures emanating from underlying foreign exchange demand and supply factors.

In response to this, and to curtail further build-up of speculative and other causes of exchange rate pressures unrelated to economic fundamentals, the Reserve Bank instituted additional monetary tightening measures on September 27, 2024, which were buttressed and solidified in the February 2025 Monetary Policy Statement.

This resulted in the consolidation of the price and exchange rate stability path, improvement in market confidence and further strengthening of the performance of ZiG.

Our considered view is that the current monetary policy stance is appropriate and can durably anchor stability in prices and the exchange rate, as witnessed from the first week of October 2024 to the present.

The Reserve Bank achieved its month-on-month inflation target of less than 5 percent by the end of 2024, notwithstanding the sharp hike in October 2024, which followed the depreciation of the exchange rate on September 27, 2024.

Q: How has the introduction of ZiG impacted inflation and exchange rate volatility?

A: You will be aware that when ZiG was introduced in April 2024, the parallel market exchange rate premium was above 100 percent.

This has now fallen to less than 20 percent, as of March 2025. The ZiG currency, therefore, managed to curb the recurrence of exchange rate volatility and is fostering some measure of certainty and predictability in consumer spending and business planning, which is critical in anchoring growth.

As alluded to above, the Reserve Bank has managed to identify and address some of the root causes of unwarranted exchange rate volatility, resulting in relative price and exchange rate stability for the greater part of 2024, and continued into 2025.

The willing-buyer, willing-seller (interbank) exchange rate remained stable in 2024, notwithstanding the transitory challenges that resulted in a once-off depreciation at the end of September 2024.

Since then, the exchange rate has been realigned to market fundamentals.

The parallel market premium also collapsed to current internationally accepted margins of below 20 percent for developing countries.

In the same vein, month-on-month ZiG inflation, which spiked in October 2024 following the sharp exchange rate depreciation, and again in January 2025 after a shock in rental prices, has remained low on average, and moderated to 0,5 percent in February 2025 and -0,1 percent in March 2025, therefore, anchoring inflation expectations.

In the outlook period, the stability of ZiG, anchored by the tight monetary policy stance, is expected to remain sustainable, thus durably anchoring price and exchange rate expectations.

The continuation of this trend is expected to result in end-2025 annual inflation being contained to below 30 percent, which is consistent with the achievement of the projected 6 percent growth in real GDP (gross domestic product) in 2025, anchored by exchange rate stability to the economy.

Q: One of your targets when you assumed office last year was to ensure increased acceptance of the local currency. What is the ratio of acceptance of ZiG compared to the US dollar this year, in comparison to last year?

A: Before the introduction of ZiG, the economy had been moving towards full dollarisation, with domestic transactions mainly conducted in the US dollar accounting for over 80 percent of market transactions.

The volatility of the local currency then, coupled with the resultant high levels of inflation, systematically eroded the value of ZWL (the Zimbabwe dollar), and further entrenched dollarisation in the economy.

The launch and wide circulation of ZiG restored most of the functions and characteristics of the domestic currency, including acceptance and, to some extent, store of value.

Stability in inflation and exchange rate has expanded the use of ZiG in both the goods and money markets, as demonstrated by exponential growth in ZiG-denominated real-time gross settlement (RTGS) system platforms and payment streams.

As a result, the local currency’s share in total transactions has increased to above 35 percent, from less than 15 percent in 2023, and continues to grow as confidence in ZiG rises.

The Reserve Bank also implemented additional measures in the February 2025 Monetary Policy Statement to support the increased use of ZiG, particularly in the informal sector.

These measures include the enforcement of point-of-sale (POS) machines for all businesses in the economy.

The rollout of POS machines is being done in collaboration with local authorities and other service providers, who will be required to license businesses that have POS machines.

Furthermore, the Reserve Bank has engaged banking institutions to ensure that all businesses requiring bank accounts and POS machines are provided with them at a reasonable cost and within reasonable time frames.

These additional measures are expected to further boost the market share of the local currency in the medium to short term.

Q: How has the payment of quarterly payment dates (QPDs) for corporate tax through a 50/50 US$:ZiG arrangement boosted the utilisation of the local currency?

A: Confidence in a currency is sustainably restored when money fulfils all its functions; in particular the store of value, medium of exchange and unit of account characteristics.

The promulgation by the Government of a Statutory Instrument requiring businesses and taxpayers to pay quarterly payment dates tax obligations with at least 50 percent in the local currency has increased demand for ZiG and its utilisation in the economy.

Precisely, the policy has effectively increased the demand for ZiG, as companies mobilise the local currency in preparation for meeting the portion of corporate tax mandatorily payable in the local currency.

As businesses comply with this requirement, they either increase their transactions in ZiG or are forced to offload foreign currency for ZiG into the WBWS (willing-buyer, willing-seller) foreign exchange market, thereby boosting the utilisation of the local currency in the economy.

Complementing these efforts, the Reserve Bank has raised the minimum ZiG deposit rates for time and savings deposits to ensure the preservation of value for local currency savings.

Given the current and expected low inflation, the resultant positive returns from savings and time deposits will also help boost demand for ZiG.

Q: In April last year, the RBZ indicated that it had reserve assets of US$100 million in cash and 2 522 kilogrammes of gold (US$185 million). What amount of cash and gold does the RBZ currently hold?

A: The Reserve Bank continues to actively pursue a strategy to accumulate reserves to build an adequate buffer of foreign reserves for ZiG stability as well as provide sufficient import cover for the economy.

The international reserves held by the Reserve Bank have steadily increased, reflecting the bank’s aggressive reserve accumulation strategy. As of April 5, last year, foreign reserves holdings at the Reserve Bank amounted to $285 million (cash and gold).

As of March 26, 2025, the international reserves held by the bank amounted to US$523 million (cash, gold and other precious minerals)

Q: In addition, how much ZiG is now in circulation compared to last year in April? What are the reasons for the variance?

A: As of March 25, the cumulative ZiG notes and coins issued by the Reserve Bank to the market amounted to ZiG200,07 million, which translates to about 5,26 percent of the estimated reserve money on the day in question.

The amount of ZiG200,07 million was an increase from ZiG17,76 million, which was issued at the end of April 2024.

In addition to the physical form of ZiG, the Reserve Bank has also noted a substantial increase in ZiG-denominated transactions on the national payments system, across all the payment streams. In addition, the proportion of ZiG deposits held by banks also increased from less than 10 percent before the introduction of ZiG to current levels of around 15 percent.

Currency issuances by the Reserve Bank are done primarily in accordance with demand, but also in line with regional and international benchmarks, such as the ideal proportion of currency to reserve money or money supply, given the anticipated level of economic activity.

The amount of currency in issue also takes into account other financial sector objectives such as the need to promote a cash-lite economy, digital financial inclusion and advancements in fintech.

The current proportion of 5,26 percent for currency to reserve money is, therefore, in line with proportions in the SADC (Southern African Development Community) region, which range between 5 percent and 10 percent.

The Reserve Bank, thus, continuously monitors currency usage patterns, including the demand for various denominations, to ensure that the currency in circulation is sufficient to facilitate transactions efficiently and, at the same time, maintain price stability.

The Reserve Bank is working on enhancing the quality and design of the ZiG banknotes in line with international standards, as promised in the February 6, 2025 Monetary Policy Statement.

Empirical evidence from across jurisdictions suggests that the design and rollout of new currency notes are a specialised process that can take some time, usually ranging from a minimum of six months to two years.

In this context, the Reserve Bank is making concerted efforts to ensure the delivery of the new ZiG banknotes in the shortest possible time, considering all the critical steps involved in the design and rollout process.

It should be noted that currency printing in any country is of a high-security nature; therefore, it is not appropriate to disclose the company internally or externally of who was or would be contracted by the Government of Zimbabwe to do the printing of the redesigned currency.

Q: In your first Monetary Policy Statement, you mentioned that a currency road map will be created towards 2030. Could you explain how the performance of ZiG over the past year has shaped or contributed to this road map?

A: The de-dollarisation road map is crucial for restoring confidence in the local currency.

The Reserve Bank believes in a gradual and market-driven approach to de-dollarisation that will ensure the country gradually and sustainably transitions to a mono currency regime by 2030.

In this regard, gradual and incremental but notable milestones should be achieved along the way. The gradual approach will ensure that no disruptive shocks are introduced to the economy, which may result in bank runs and reversal of the anticipated gains from de-dollarisation. As such, currency stability should underlie the de-dollarisation process.

Country experiences have amply shown that sustained price stability is the single most significant precondition for successful de-dollarisation.

The rising proportion of ZiG-denominated transactions in the national payment system and the proportion of ZiG deposits held by banks is a step in the right direction.

The Reserve Bank expects this to continue as long as the currency remains stable, with additional transactions currently exclusively in USD, such as fuel, also slowly coming on board in due course.

Q: As part of your financial inclusion strategy, you indicated that the RBZ was rolling out point-of-sale machines to promote the use of normal banking channels. What progress has been made on the exercise?

A: On the issue of point-of-sale machines, this requirement is designed to enhance digital transactions and drive the increased use of the local currency in the economy.

Importantly, the measure will go a long way in supporting the formalisation of the informal sector to enhance tax revenue collection and increase financial inclusion.

The Reserve Bank recognises that access to digital payment systems is essential for financial inclusion, and the goal of the bank is to create a more robust and inclusive payment ecosystem that supports economic activity across all regions.

As already explained, the rollout of the use of point-of-sale machines to all rural and marginalised areas of the country is an ongoing process.

To ensure that there is a business case for banks and other providers of POS machines, small businesses will be provided with mobile point-of-sale (MPOS) machines which can be shared amongst small businesses.

Each business will be provided with a unique code/password linked to its bank account, which can be used to track transactions.

The enforcement of the deployment and use of POS machines will be multifaceted and even members of the public can assist in reporting large retailers in their constituencies not adhering to the requirements.

Importantly, the banks will be required to update the Reserve Bank regarding the utilisation of the POS machines in the country.

As such, the Financial Intelligence Unit will be able to follow up and monitor the compliance of businesses with the use of point-of-sale machines, in line with the expected volume of electronic sales in each area.

Overall, the stability of the exchange rate and prices should result in increased uptake and wide use of POS machines in the country.