News / Local
Zimbabwe govt must support ZiG currency through raft of solid measures
19 May 2024 at 06:55hrs | Views
THE Reserve Bank of Zimbabwe (RBZ) has been urged to implement a raft of measures, including fiscal discipline, public consultation and policy consistency, if the newly introduced Zimbabwe Gold (ZiG) is to be successful.
This week, the ZiG bank notes and coins came into circulation after a controversial introduction of the currency on 5 April, without public consultation, creating chaos in the domestic market.
The ZiG is dramatically depreciating on the parallel market as margins widen for informal traders and corporates seeking profitable arbitrage opportunities, a harbinger of worse things to come.
For instance, the currency is already trading at US$1:ZiG 21 on the parallel market, while the official rate is pegged at US$1:ZiG13.56. Some schools are already pegging rates at US$1:ZiG23 raising an outcry while highlighting the waning confidence in the currency.
In its latest analysis, a social justice watchdog, the Zimbabwe Coalition on Debt and Development (Zimcodd), said Treasury should swiftly undertake bold reforms to regain lost market confidence for the ZiG to survive.
"The 2024 Monetary Policy Statement was unveiled when the market was rapidly self-dollarising, with over 80% of economic transactions being conducted in United States dollars. This shift was primarily due to persistent local currency volatility, which saw it lose over 70% of its value in the first three months of 2024. The constant, severe fluctuation of the local currency has led to unbearable price growth for consumers.
"History is a painful reminder of losses incurred by economic agents over the years since the nation started currency revaluations in 2006. Between early 2006 and early 2009, the RBZ officially revalued the Zimbabwe dollar at least thrice before dumping it for the United States dollar under a multi-currency regime.
"Whenever a new local currency is launched, economic agents lose a significant portion of the value of their deposits and savings kept in the banking sector. This phenomenon has primarily reduced public confidence in banks and the government's monetary policies, encouraging pillowcase/mattress banking, particularly for the informal sector economy."
In its analysis, Zimcodd urged the authorities to have adequate political will to support the swift implementation of the 2024 monetary policy measures together with other critical sector-wide reforms, while promoting policy consistency and citizen participation.
"The RBZ, in particular, and the government, in general, must reckon that citizen participation (CP) is a crucial element of good governance as it allows citizens to inform, evaluate, monitor, and influence decisions that affect them daily. The involvement of citizens in public decision making is key for: "Engaging citizens in the policy formulation, implementation, and evaluation of policies of their own govt. Public policy improvement - academics, technocrats, civil society, NGOs, Church, etc, provide informed advice."
Zimcodd urged Treasury to allow the Reserve Bank to adjust the supply of ZiG to maintain confidence in future gold convertibility, and curb public resource leakages through corruption and unbudgeted expenditure through quasi-fiscal operations.
Quasi-fiscal activities are any undertakings carried out by state-owned banks under government direction, but are unbudgeted for.
For instance, the RBZ has since 2000 been carrying out quasi-fiscal activities across all sectors of the economy such as health, infrastructure, education and agriculture, in mostly unsuccessful attempts to promote economic growth, according to the independent public policy think-tank Veritas.
In 2008, the RBZ funded the farm mechanisation programme, and gave loans at concessionary rates to resettled farmers, companies and statutory bodies outside the national budget, which were never audited and were seldom repaid.
The programme, among others, was not authorised by the Reserve Bank of Zimbabwe Act or any other law, and sank the RBZ into debt. This saw Parliament pass the Reserve Bank of Zimbabwe (Debt Assumption) Act of 2015 through which the government would take over the debts and gave the bank a clean start.
On maintaining a stable exchange rate, Zimcodd said ZiG notes must be made available and easily accessible to the transacting public.
"There is also a need for increased efforts to subdue exchange rate multiplicity, which sustains corruption, rent-seeking, and round-tripping shenanigans. It is the public's view that gold coins and gold-backed digital tokens (GBDT) trading should be discontinued as they risk creating unnecessary gold demand, which constrains an accelerated accumulation of reserves," it read.
"These gold coins and GBDT will likely have their own exchange rates in the market. At least following the global 10-15% rule of thumb, the ZiG notes must also be made available and easily accessible to the transacting public. Otherwise, the ZiG notes and coins will also have a different exchange rate from that of ZiG electronic balances, creating a fertile ground for parallel market activities.
"Transparency will foster better communication between RBZ and all its stakeholders, thereby reducing uncertainty, building trust, and contributing to practical policy-making. Transparency principles related to RBZ governance (legal structure, mandate, autonomy, decision-making arrangements, risk management, internal accountability, communication, and confidentiality)."
Zimcodd said the RBZ should adopt advanced financial technologies such as distributed ledger technology for transparency, while rolling governance reforms.
"This will circumvent the dangers of reliance on centralised, traditional database systems, which are highly prone to manipulation, may be hacked, and are susceptible to genuine human errors. In addition, advanced technologies are vital in ensuring precious mineral production tracking and monitoring to minimise chances of leakages through illicit trading," it said.
"Governance reforms - enhancing justice delivery, implementing political reforms, increasing public sector transparency and accountability, strengthening anti-corruption mechanisms, and enhancing security, safety, and respect for all rights and freedoms.
"Central bank independence - the RBZ must be able to make monetary policies that are not dictated by political considerations. This gives monetary policy credibility, which is key to reducing inflationary expectations."
This week, the ZiG bank notes and coins came into circulation after a controversial introduction of the currency on 5 April, without public consultation, creating chaos in the domestic market.
The ZiG is dramatically depreciating on the parallel market as margins widen for informal traders and corporates seeking profitable arbitrage opportunities, a harbinger of worse things to come.
For instance, the currency is already trading at US$1:ZiG 21 on the parallel market, while the official rate is pegged at US$1:ZiG13.56. Some schools are already pegging rates at US$1:ZiG23 raising an outcry while highlighting the waning confidence in the currency.
In its latest analysis, a social justice watchdog, the Zimbabwe Coalition on Debt and Development (Zimcodd), said Treasury should swiftly undertake bold reforms to regain lost market confidence for the ZiG to survive.
"The 2024 Monetary Policy Statement was unveiled when the market was rapidly self-dollarising, with over 80% of economic transactions being conducted in United States dollars. This shift was primarily due to persistent local currency volatility, which saw it lose over 70% of its value in the first three months of 2024. The constant, severe fluctuation of the local currency has led to unbearable price growth for consumers.
"History is a painful reminder of losses incurred by economic agents over the years since the nation started currency revaluations in 2006. Between early 2006 and early 2009, the RBZ officially revalued the Zimbabwe dollar at least thrice before dumping it for the United States dollar under a multi-currency regime.
"Whenever a new local currency is launched, economic agents lose a significant portion of the value of their deposits and savings kept in the banking sector. This phenomenon has primarily reduced public confidence in banks and the government's monetary policies, encouraging pillowcase/mattress banking, particularly for the informal sector economy."
In its analysis, Zimcodd urged the authorities to have adequate political will to support the swift implementation of the 2024 monetary policy measures together with other critical sector-wide reforms, while promoting policy consistency and citizen participation.
"The RBZ, in particular, and the government, in general, must reckon that citizen participation (CP) is a crucial element of good governance as it allows citizens to inform, evaluate, monitor, and influence decisions that affect them daily. The involvement of citizens in public decision making is key for: "Engaging citizens in the policy formulation, implementation, and evaluation of policies of their own govt. Public policy improvement - academics, technocrats, civil society, NGOs, Church, etc, provide informed advice."
Zimcodd urged Treasury to allow the Reserve Bank to adjust the supply of ZiG to maintain confidence in future gold convertibility, and curb public resource leakages through corruption and unbudgeted expenditure through quasi-fiscal operations.
For instance, the RBZ has since 2000 been carrying out quasi-fiscal activities across all sectors of the economy such as health, infrastructure, education and agriculture, in mostly unsuccessful attempts to promote economic growth, according to the independent public policy think-tank Veritas.
In 2008, the RBZ funded the farm mechanisation programme, and gave loans at concessionary rates to resettled farmers, companies and statutory bodies outside the national budget, which were never audited and were seldom repaid.
The programme, among others, was not authorised by the Reserve Bank of Zimbabwe Act or any other law, and sank the RBZ into debt. This saw Parliament pass the Reserve Bank of Zimbabwe (Debt Assumption) Act of 2015 through which the government would take over the debts and gave the bank a clean start.
On maintaining a stable exchange rate, Zimcodd said ZiG notes must be made available and easily accessible to the transacting public.
"There is also a need for increased efforts to subdue exchange rate multiplicity, which sustains corruption, rent-seeking, and round-tripping shenanigans. It is the public's view that gold coins and gold-backed digital tokens (GBDT) trading should be discontinued as they risk creating unnecessary gold demand, which constrains an accelerated accumulation of reserves," it read.
"These gold coins and GBDT will likely have their own exchange rates in the market. At least following the global 10-15% rule of thumb, the ZiG notes must also be made available and easily accessible to the transacting public. Otherwise, the ZiG notes and coins will also have a different exchange rate from that of ZiG electronic balances, creating a fertile ground for parallel market activities.
"Transparency will foster better communication between RBZ and all its stakeholders, thereby reducing uncertainty, building trust, and contributing to practical policy-making. Transparency principles related to RBZ governance (legal structure, mandate, autonomy, decision-making arrangements, risk management, internal accountability, communication, and confidentiality)."
Zimcodd said the RBZ should adopt advanced financial technologies such as distributed ledger technology for transparency, while rolling governance reforms.
"This will circumvent the dangers of reliance on centralised, traditional database systems, which are highly prone to manipulation, may be hacked, and are susceptible to genuine human errors. In addition, advanced technologies are vital in ensuring precious mineral production tracking and monitoring to minimise chances of leakages through illicit trading," it said.
"Governance reforms - enhancing justice delivery, implementing political reforms, increasing public sector transparency and accountability, strengthening anti-corruption mechanisms, and enhancing security, safety, and respect for all rights and freedoms.
"Central bank independence - the RBZ must be able to make monetary policies that are not dictated by political considerations. This gives monetary policy credibility, which is key to reducing inflationary expectations."
Source - newshawks
