Following
years
of
currency
uncertainty
and
instability,
the
Zimbabwean
government
has
provided
the
clearest
indications
yet
of
its
plans
to
move
from
the
US
dollar-dominated
multi-currency
system
by
2030
and
adopt
a
single
currency,
led
by
the
newly
introduced
Zimbabwe
Gold
(ZiG).Zimbabwe’s
economy
has
suffered
immensely
since
2008,
when
inflation
exceeded
one
million
percent.
Since
then,
the
government
has
made
six
attempts
to
adopt
a
local
currency,
with
the
latest
coming
in
April
2024
through
the
ZiG,
which
is
backed
by
a
combination
of
foreign
currency
reserves,
gold
and
other
precious
metals
worth
a
combined
USD
285m.
Since
its
introduction,
the
ZiG
has
eased
Zimbabwe’s
inflationary
pressures,
performed
significantly
better
against
the
dollar
in
comparison
to
its
predecessor
—
the
Zimbabwe
dollar
(ZWL)
—
and
has
been
lauded
by
local
bankers
and
the
International
Monetary
Fund
(IMF)
for
providing
economic
stability.
A
tough
road
ahead
On
the
back
of
this
optimism,
the
government
officially
confirmed
on
6
August
that
its
cabinet
had
approved
a
roadmap
to
adopt
the
ZiG
as
the
sole
currency
by
2030,
though
details
of
this
will
be
provided
in
due
course
by
Finance
Minister
Mthuli
Ncube.
While
it
is
positive
that
the
government
is
optimistic
about
the
stability
of
the
ZiG,
there
are
several
challenges
that
will
likely
hinder
the
government’s
plans
to
implement
a
single
currency
system
within
the
next
six
years.
For
instance,
the
country
is
currently
heavily
reliant
on
the
US
dollar
(USD)
as
the
main
denominating
currency
in
the
economy.
Statistics
from
the
Reserve
Bank
of
Zimbabwe
(RBZ)
at
the
beginning
of
August
indicate
that
70%
of
all
transactions
in
the
economy
are
denominated
in
USD
–
though
this
is
down
from
85%
when
the
ZiG
was
introduced
in
April.
Additionally,
the
ZiG
has
struggled
to
strengthen
against
the
USD
since
its
introduction:
according
to
the
RBZ,
the
ZiG
was
trading
at
13.79
to
the
USD
at
the
beginning
of
August,
1.6%
weaker
than
its
opening
trading
value
of
13.56
in
April.
While
the
decrease
in
the
use
of
USD
and
relative
stability
of
the
ZiG
can
be
seen
as
positives,
the
currency
is
undermined
by
the
same
factors
that
helped
to
undermine
previous
attempts
to
re-establish
a
sole
currency.
These
include
a
lack
of
confidence
in
the
banking
sector
and
the
local
economy,
as
well
as
the
large
scale
of
the
unregulated
informal
economy,
which
is
arguably
the
most
significant
issue
for
the
government
to
resolve.
Informal
economy
conundrum
Decades
of
inflation
pressures,
driven
by
fiscal
mismanagement
and
poor
governance
policies,
have
made
the
informal
economy
Zimbabwe’s
preferred
economic
method.
It
is
cash-based
and
relies
heavily
on
the
US
dollar.
It
has
also
become
the
best
way
for
ordinary
Zimbabweans
to
survive,
with
approximately
80%
of
the
economy
being
classified
as
informal
and
bypassing
government
regulations
and
taxes.
This
undermines
the
government’s
ability
to
collect
tax
revenues
and
contributes
to
constraints
in
its
ability
to
service
its
debts
and
provide
basic
services.
The
dominance
of
the
informal
economy
can
be
illustrated
by
the
fact
that
most
Zimbabweans,
rather
than
shopping
at
formal
retail
stores
such
as
Pick’N’Pay
and
OK,
buy
their
groceries
from
rows
of
minivans
parked
on
the
street
opposite
the
stores.
These
minivans
are
packed
full
of
products
smuggled
in
from
South
Africa,
which
are
sold
for
a
fraction
of
the
price
of
the
larger
grocers.
Even
for
local
suppliers,
the
volatility
of
the
currency
makes
it
risky
to
sell
to
the
formal
sector.
A
Zimbabwean
farmer
based
in
the
capital
Harare
advised
us
that
any
meat
sold
to
Pick’N’Pay
will
be
on
30-day
payment
terms
and
in
local
currency,
which
means
the
value
could
drop
substantially
by
the
time
he
receives
payment.
This,
in
turn,
causes
inflated
pricing
for
the
larger
retail
stores.
Meanwhile,
if
he
sells
the
meat
to
the
informal
trader,
the
price
is
in
USD
and
is
paid
immediately.
These
examples
illustrate
the
core
problem
plaguing
the
local
currency:
for
the
majority
of
citizens,
the
informal
market
has
simply
become
the
easier
and
more
convenient
means
of
conducting
business.
The
ZiG
is
also
lagging
behind
in
terms
of
circulation
in
the
economy.
More
than
four
months
after
the
currency
was
introduced,
it
is
common
for
many
Zimbabweans
(particularly
those
not
employed
by
the
government)
to
have
never
even
seen
a
ZiG
bank
note.
The
government
has
indicated
that
it
plans
to
increase
penalties
against
those
involved
in
“unjust
price
hikes,
manipulation
of
the
ZiG,
smuggling,
and
all
forms
of
unfair
trade
practices”.
While
such
plans
are
indicative
of
the
government’s
determination
to
tighten
regulations
against
the
informal
market
and
increase
the
use
of
the
ZiG
in
the
economy,
it
remains
unlikely
that
the
plans
will
successfully
penalise
the
80%
of
the
population
that
survives
through
the
informal
economy.
It
is
clear
that
the
government’s
roadmap
towards
de-dollarizing
and
adopting
the
ZiG
as
the
country’s
sole
currency
will
likely
face
several
implementation
challenges
over
the
next
five
years.
The
government
has
yet
to
provide
any
details
of
this
roadmap.
Meanwhile,
formal
businesses
in
Zimbabwe
will
continue
to
conduct
most
of
their
financial
transactions
in
USD.
Overall,
the
ZiG’s
potential
impact
looks
weak,
neither
detering
the
use
of
foreign
currency
in
the
informal
economy
nor
eroding
the
USD’s
influence
on
the
formal
economy.
The
government’s
use
of
penalties
to
force
the
ZiG
on
Zimbabweans
will
likely
backfire,
instead
increasing
the
use
of
the
informal
economy
and
potentially
causing
larger,
tax-paying
formal
businesses
to
exit
the
country.
The
ruling
Zimbabwe
African
National
Union
–
Patriotic
Front
(ZANU-PF)
–
is
also
unlikely
to
completely
ban
the
USD,
which
its
senior
members
still
covet
and
need
to
keep
the
mining
sector
–
which
is
not
conducted
in
ZiG
–
afloat.
While
the
ZiG
has
remained
stable,
the
increasing
scale
and
influence
of
the
informal
economy
will
hinder
the
government’s
long-term
plan
to
abolish
the
use
of
other
currencies.
Instead
of
using
sticks
to
push
the
ZiG,
the
government
should
instead
think
about
carrots
to
increase
confidence
in
Zimbabwe’s
financial
system
and
enable
the
government
to
implement
regulations
that
can
enable
it
to
generate
sufficient
ZiG-denominated
tax
revenue
and
support
economic
growth.