Financial inclusion: The missing link for ZiG?

Tawanda Musarurwa

IN the 2024 Monetary Policy Statement (MPS), Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu said the launch of Zimbabwe Gold (ZiG) and the underpinning monetary policy should result in the restoration of price and exchange rate stability.

Since it started trading on April 8, 2024, at the rate of 13,56 to the United States dollar, ZiG has ranged between 13,2 and 13,6 to the greenback.

Concerning price and exchange rate stability, ZiG is on track. But the limited availability of cash, particularly coins and low-denomination notes, has remained a concern.

This is despite local banks holding ZiG cash.

Zimbabwe has a highly informalised economy. Additionally, there are low levels of financial inclusion in the informal economy.

According to the Zimbabwe National Statistics Agency’s Quarterly Labour Force Survey 2023 Fourth Quarter Results, informally employed people accounted for 86,8 percent of all employed individuals.

On the other hand, the Finscope Zimbabwe 2022 Consumer Survey noted that, although the percentage of the population that was formally banked has risen over the years, from 24 percent in 2011 to 30 percent in 2014, and to 46 percent in 2022, the majority had no access to formal bank products/services.

This could explain why banks are currently sitting on ZiG notes and coins, despite cash and change shortages prevailing on the market.

Economist Mr Prosper Chitambara said the country’s informal sector is highly dollarised.

“With the informal economy, the major challenge is that a lot of the players and actors do not have bank accounts; theirs is a cash-based economy, which is highly dollarised,” he said.

“This is why the uptake of ZiG in the informal economy is very low.”

According to figures provided by the Confederation of Zimbabwe Retailers (CZR), 80 percent of transactions for formal retailers are in ZiG, while 20 percent are in US dollars.

Mr Chitambara said there was need for social dialogue between the monetary authorities and informal sector players to come up with initiatives that have the latter’s buy-in.

An initiative along these lines, which commenced on June 10, was the “Swipe for ZiG Cash”, whereby the public can swipe for cash at Homelink branches across the country.

While low financial inclusion in the informal sector has contributed to the cash crunch, there are indications that formal sector players are also not approaching banks for cash.

During an engagement with retailers last week, Dr John Mushayavanhu said: “As we speak right now, we have US$55 million worth of ZiG in circulation. This is more than the amount that was in circulation when we had bond notes.

“We have issued ZiG1, ZiG2, ZiG5, ZiG10 and ZiG20. The question I want to ask your (CZR) members is: Have you gone to your banks and said I want float for change?

“My knowledge of supermarkets is that you should have a float. It’s different from the kombi operators we were talking to yesterday (Monday last week), who said: ‘I get given a car and I am told to go and come back with money.’

“With supermarkets, you cannot operate without a float. Have you gone to your bank and said I want ZiG100 000 in ZiG1, ZiG2 or ZiG5 and they said they do not have it?

“I have evidence that banks are sitting on ZiG coins for which there are no takers. We met the banks last week, and they said they are sitting on the money because there are no takers.”

Is the multicurrency regime working against ZiG?

When ZiG was launched in April, it came into the multicurrency system, and a market that has shown preference for the US dollar.

RBZ figures show that foreign currency deposits accounted for 77,09 percent of total deposits in the local banking sector as at the end of last year.

This was also reflected in transactions.

“The economy has, of late, been moving towards full dollarisation, as the US dollar has continued to dominate the weaker Zimbabwe dollar, with over 80 percent of market transactions now conducted in US dollars,” said the RBZ Governor while presenting the 2024 MPS in April.

In a dual or multicurrency system, speculative behaviour and arbitrage opportunities arise due to parallel foreign currency markets that offer premiums that are beyond official market levels. In Zimbabwe’s experience with the multicurrency system, speculative tendencies have also presented as a survivalist response for those who experienced the harsh reality of the 2008 hyperinflationary era.

Experts say inflationary psychology is premised on the basic concept that if prices are rising and have increased in the past, then the various economic agents will expect prices to continue to rise in the future, and, thus, behave accordingly.

Last week the RBZ Governor hinted at speculative attacks on the new currency by some manufacturers.

“When we first asked for that information, the pipeline invoices amounted to US$100 million. The manufacturers for whoever was presenting the invoices wanted to buy US$100 million worth of currency,” said Dr Mushayavanhu.

“That was immediately after we introduced ZiG, and at that time, the total ZiG in circulation was less than US$100 million, so are these genuine invoices?”.

The central bank’s Financial Intelligence Unit has escalated a blitz on illegal foreign currency dealers and other speculators.

The elimination of arbitrage opportunities is expected to go a long way in solving challenges that have emerged under previous currency regimes.

The exchange rate under ZiG is being guided by a willing-buyer, willing-seller interbank market, whereby the RBZ collates the various rates that the banks have been trading at for the day to determine the average. And because ZiG is backed by gold, the central bank also tracks the “gold-implied exchange rate” to assess if the currency is performing as expected.

With companies expected to meet at least half of their tax obligations on quarterly payment dates (QPDs) in the local currency — and with the first payments under the ZiG currency regime due at the end of this month — the exchange rate is likely to appreciate.