Anti-Zimbabwe economist says ZiG is old wine in new bottles

Prominent Zimbabwean economist and financial analyst Professor Gift Mugano says the new local currency launched today - unimaginatively named Zimbabwe Gold (ZiG) amid noisy claims by government officials there is US$275 million reserves to anchor it - is old wine in new bottles.

Mugano, who worked with the government before he was pressured out and now Director Centre for African Governance & Development at the Durban University of Technology, South Africa, said ZiG is the same thing in disguise as other local currency versions such as RTGS, bond notes and Zimdollar, which ultimately is a cocktail of failure.

In an X post, Mugano says:
"The new currency has finally landed. Same old wine in the same old bottle.

"In my previous posts, I underscored that the structured currency will fail as a result of:
(1) a large informal sector (+80% of the economy); (2) drought of confidence; (3) drought of production; (4) printing of money & excessive liquidity caused by treasury; (5) lack of national cohesion and consensus; (6) lack of policy clarity; and (7) external shocks (drought & subdued commodity prices).

"The MPS presented by the new Governor today reminds me of the MPS which was presented by Dr JP Mangudya  on 20 February 2019 where the later introduced the RTGS as the new currency with a starting exchange rate of ZW$2.5: US$1 (inter bank rate/market).

"Immediately, the exchange rate started to run away and today the ZW was trading at ZWL$40,000: US$1.

This is exactly what is going to happen to ZiG!

Over and above the 7 points raised above, the existence of the USD in the market (although unavoidable), is the worst enemy of ZiG. ZiG can't compete with the USD in the market.

"As long as ZiG is not accepted/used exclusively at fuel stations, passport office, Zimra (payment of duties & taxes), schools, tuckshops, etc then forget about ZiG.

"Most importantly, if individuals/anyone can't walk into a bank and buy /sell foreign currency the same way they do in the informal market/black market at an attractive rate, the forget about ZiG.

"Another serious threat to ZiG which requires special attention is excessive liquidity from the Ministry of Finance going towards payment of contractors & civil servants salaries. The approved 2024 budget stood at ZWL$58.2 trillion albeit it is eroded by inflation & exchange rate spiral.

"The RBZ in its MPS presentation, it placed emphasis on the fact that the total reserves in its coffers amount to US$285 million are more than 3 times the current reserve money, i.e., ZW$2.6 trillion (equivalent of US$90 million). This is a correct assessment.

"However, the RBZ is obviously not factoring in the impact of the excessive liquidity from the Treasury. Obviously, with exchange rate movement which has seen official exchange rate slipping from ZWL$6K from the day when the 2024 budget was launched to ZWL$25K as of this week, it means that our budget shrunk by more than 4 times in 3 months. The converse is true - it is implied that the budget has moved from ZW$58.2 trillion by four (4) times - so we may be talking of a realistic budget of ZWL$240 trillion.

"The question which arises is that when RBZ is presenting its MPS, isn't prudent that it must also raise a point of advice to Treasury (as an advisor to GOZ) on the possible implications of liquidity on the exchange rate. Likewise, isn't fair to request the RBZ to give us a balanced assessment of the impact of reserve money & excess liquidity from treasury on the exchange rate than to concentrate on the reserve money supply only?

"I would like to argue that the national budget has always been and will always be the biggest threat to the exchange rate stability - more than money supply.
The question which arises again is the US$285 million enough to cover USD demand (demand for value preservation) from civil servants & contractors? The answer is a big no!

"ZiG = bond note = ZWL = RTGS = FAILURE."