THE government has launched a nationwide programme to integrate unregistered businesses into the formal economy by distributing point-of-sale (POS) machines, now a prerequisite for obtaining operating licences.
While this initiative seems promising to the average citizen, a key concern remains: Will businesses transact at interbank rates or parallel market rates?
Given the persistent liquidity crunch imposed by the Reserve Bank of Zimbabwe (RBZ), one might expect increased confidence in the local currency. However, businesses continue to trade at rates exceeding US$1:ZiG35.
Recently, I booked a bus ticket with a local company to travel to one of our special economic zones. I was given the option to pay in either US dollars or Zimbabwean Gold (ZiG).
Choosing to swipe in ZiG, I was surprised to find that they applied a rate of US$1:ZiG40. Rather than blaming these businesses for exacerbating inflation through exchange rate disparities or urging the Financial Intelligence Unit (FIU) to penalise non-compliant businesses, it is crucial to analyse the underlying reasons for such actions.
History has shown that enforcing FIU regulations alone is ineffective, we have seen this movie before, and I do not think we can afford to keep repeating the same cycle.
If anything, this is the time to implement structural solutions to address the fundamental issue of currency confidence.
A few weeks ago, the central bank governor dismissed claims of a foreign currency shortage, asserting that supply exceeds demand for entities with valid invoices.
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However, this perspective does not sound right. In a country where over 80% of transactions are conducted in US dollars, why should individuals be required to present valid invoices to exchange their money for a widely used currency?
When questioned about why certain sectors, such as the oil industry (petrol & diesel), operate exclusively in US dollars, the central bank justified it by citing the multi-currency regime and acknowledging that most people earn US dollars.
If the central bank aims to encourage the use of local currency also citing increased foreign currency reserves, it must also expand the market share of ZiG across the economy.
Sectors that predominantly transact in US dollars should also transact in local currency. The core issue in restoring trust in the local currency is its utility — if people can seamlessly transact across all sectors using ZiG, they will be less inclined to immediately convert their earnings to US dollars.
This shift could also foster local currency savings and incentivise borrowing in ZiG, thereby, supporting financial intermediation.
Under this formalisation initiative, local authorities have been instructed to grant or renew operating licences only for businesses with functional POS machines and registered bank accounts.
However, in the short to medium term, this measure may have limited impact, as many businesses have historically thrived informally without licences.
Businesses are more likely to respond to incentives rather than regulatory compulsion, which is why addressing the currency crisis is critical.
The government expects this initiative to boost the use of ZiG, enhance digital transactions and tax compliance, and promote financial inclusion.
However, without restoring faith in the local currency, even formalised businesses may continue prioritising US dollars, undermining the initiative’s effectiveness.
The central bank’s tight monetary policy, reinforced by high interest rates to deter speculative borrowing, presents its own challenges.
This approach is unsustainable for an economy anticipating 6% growth and increased local currency adoption.
That is why in contrast to these liquidity-tightening measures, the central bank introduced the targeted finance facility. For instance, home improvement retailer Powerspeed Electrical Limited has reported difficulties in securing capital for expansion.
The broader market is facing a severe liquidity crisis due to stringent policies aimed at preserving the value of the ZiG. Many businesses struggle to increase production, finance ongoing projects, and expand operations.
The RBZ governor reaffirmed that the de-dollarisation process remains on track to achieve a mono-currency regime by 2030.
However, the limited availability of US dollars constrains the central bank’s ability to leverage monetary policy tools effectively. Recently, the RBZ said it sold US$20 million, but banks only purchased US$15 million — an outcome that does not necessarily indicate surplus forex in my view, given the stringent access requirements.
To enhance confidence in adoption of the ZiG, the central bank should facilitate access to US dollars for ordinary citizens making domestic transactions requiring upfront US dollar payments.
Addressing these fundamental concerns will be crucial in ensuring that Zimbabwe’s transition to a stronger, more widely accepted local currency is both smooth and sustainable.
- Taimo is an investment analyst with a talent for writing about equities and addressing topical issues in local capital markets. He is an active member of the Investment Professionals of Zimbabwe community, pursuing the Chartered Financial Analyst charter designation.
