ZiG now accounts for 30pc of transactions — RBZ

Debra Matabvu

THERE has been a significant increase in the uptake and use of Zimbabwe Gold (ZiG) in local transactions, with the new currency now accounting for around 30 percent of all settlements in the economy, up from the initial 15 percent at its introduction in April, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu has said.

When ZiG was introduced on April 5, the central bank estimated that between 80 and 85 percent of all transactions in the economy were settled in US dollars, while the balance was in local currency.

According to its de-dollarisation road map, the RBZ had initially set a target of ensuring that 30 percent of all transactions were settled in ZiG by year-end, before reaching 40 percent next year.

The new currency was also projected to make up half of the transactions by 2026.

The increased use of ZiG has led to a surge in liquidity available in the market, prompting the RBZ to inject US$50 million into the interbank market last week to stabilise exchange rates.

In an interview with The Sunday Mail, Dr Mushayavanhu said the release of foreign currency into the market was prompted by a rise in liquidity, rather than increased demand for the greenback.

“There was no upsurge in demand for foreign currency.

“Rather, there was a shift in the product pricing ratio, with the ZiG now accounting for 30 percent of all transactions, up from the initial ratio of 80:20 in favour of the US dollar.”

In a statement on Friday announcing the US$50 million injection into the market, Dr Mushayavanhu said the central bank had sufficient foreign reserves to cover import requirements.

“In recent weeks, the Reserve Bank has witnessed a buildup in pipeline demand for foreign currency at banks, thus putting undue pressure on the foreign exchange market.

“In light of the above, the Reserve Bank is immediately injecting over US$50 million into the interbank foreign exchange market guided by the obtaining pipeline demand at banks as of July 25, 2024,” he said.

“Consistent with the April 2024 monetary policy measures that introduced the ZiG currency, the Reserve Bank has been building foreign reserves, which now stand at about four times cover of the reserve money.

“The country continues to generate significant foreign currency to meet import requirements as evidenced by an almost 10 percent increase in foreign currency receipts during the first half of 2024 compared to the same period in 2023.”

Economist and member of the RBZ Monetary Policy Committee Mr Persistence Gwanyanya said an increase in ZiG liquidity in the market was positive for the economy.

“There has been an increase of ZiG circulation in the economy and this has resulted in some pressures in the market,” he said.

“However, this is not a negative issue; it is a good problem to have.

“It shows that there is increasing circulation of the structured currency in the economy.

“We were worried when 80 percent plus of transactions were being done in US dollars. Although it gives some form of stability, it is against what we want, which is effectively de-dollarisation.

“So, when the economy is de-dollarised, the challenge related to convertibility of ZiG is transferred to those that use US dollars for importation.

“Naturally, there will be pressure on the US dollar and if it is not managed, there will be escalated volatility.

“We cannot avoid this pressure because it is indicative of the trajectory we are taking of de-dollarisation, but we should not spin the market, which is exactly what we did by injecting US$50 million.”

ZiG is backed by a basket of precious minerals, mainly gold, as well as foreign currency reserves.