"ZiG Shortage A Strategy To Starve Parallel Market"
The severe scarcity of ZiG banknotes and coins in circulation can be attributed to the Reserve Bank of Zimbabwe’s (RBZ) reluctance to distribute the new currency en masse over concerns that releasing the notes and coins all at once could inadvertently fuel the growth of the parallel market, it has emerged.
The government launched the ZiG on 05 April 2024, in an attempt to stabilise the economy, which has been unstable for the past 25 years.
The gold-backed currency replaced the Zimbabwean dollar, the RTGS, which had lost three-quarters of its value in the year it was replaced.
The new ZiG banknotes and coins that came into circulation on 30 April are in denominations of between 1 and 200.
However, the ZiG physical cash remains in short supply and this has significantly impacted millions who depend on cash for their daily needs, including people working in the informal economy.
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The situation has led to many Zimbabweans having to budget more for basics just to make it through the day.
Speaking at a breakfast meeting hosted by the Zimbabwe Economics Society in Harare, RBZ deputy governor Innocent Matshe said the central bank deliberately limited the amount of cash injected into the economy to starve the parallel market. He said (via NewsDay):
Due to the situation in our country, where a parallel market drove approximately 80% of economic activities, it was crucial to ensure that we did not supply all the new currency at once. Therefore, we limited the amount of cash injected into the economy.
Although challenges persist, they will evolve. Most financial institutions have received sufficient small denominations of the currency to address these issues.
You may wonder, why issues persist. These issues are systemic but will be resolved as the currency becomes more widely available.
The stability of the exchange rate will reflect the true value of the economy and the purchasing power of the currency, boosting domestic demand and supporting industrialisation in trade.
The ZiG will co-circulate with other foreign currencies in the economy. However, the US dollar, which accounts for over 80 of transactions, will remain legal tender.
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