Is the ZiG Already a Lost Cause?

In the face of ongoing economic unrest, the Reserve Bank of Zimbabwe’s (RBZ) attempt to stabilise the ZiG, its gold-backed currency, seems like a titanic undertaking. This is not merely a new phase in the nation’s ongoing struggle with inflation; rather, it’s a risky move that could cause more instability rather than the desired stabilisation.

The fundamental cause of the problem is the rising gap, which is expanding at the same rate as Zimbabwe’s inflation rate, between market realities and government policy.

Although it may seem like a smart strategy to increase demand, the Confederation of Zimbabwe Industries (CZI) is not persuaded. Companies are being forced to pay half of their corporate taxes in Zimbabwean dollars. Their in-depth 12-page analysis exposes the fallacious reasoning behind the RBZ’s decision.

The truth? Companies, which are already suffering greatly from losses, are not likely to take on this extra load, especially in light of the declining corporate tax base in the nation. Corporate tax revenues fell 14% in the first half of the year, which was a clear indication that the economy is now dominated by the rapidly expanding informal sector, which generates 72% of the country’s total output. Given the current state of the economy, expecting demand for ZiG to increase seems more like wishful thinking than prudent budgetary management.

A more practical option is provided by CZI, which is to draw attention to Pay As You Earn (PAYE), a more reliable source of tax income that may be able to better boost demand for local currency.

In contrast to the erratic corporate tax pool, PAYE is steady and may be significantly more dependable in creating the critical demand for the ZiG. Even However, the true issue facing Zimbabwe is its increasingly unpredictable inflation, which is being caused by the growing gap between the official and black market exchange rates. This is despite the reasonable suggestion being put out.

In Zimbabwe’s economic narrative, this disparity is more than simply a minor detail—it’s the big problem that decision-makers don’t want to admit exists. Retailers are raising US dollar prices well above what is being offered in black markets, thus undermining economic stability. This discrepancy between the official and parallel market rates is also present.

It’s a clear sign that the market is rejecting the Reserve Bank of Zimbabwe’s official position as companies look to more practical solutions in an increasingly uncertain environment. The longer this disparity remains, the greater the risk that the formal economy could implode under the weight of its own inconsistencies.

But this is more than just a tale of bungled government policy. The CZI goes further in its critique, raising concerns about whether the issue is being made worse by the RBZ’s unwillingness to give banks greater latitude in determining exchange rates. Aligning the official and parallel rates, they claim, would offer much-needed stability, allowing inflation to be managed with a more market-responsive method.

It’s just plain sense; it’s not a groundbreaking idea. But in the RBZ’s pursuit of strict control, this fundamental idea seems to be overlooked.

The question of whether the ZiG can ever really acquire traction in a market saturated with more stable currencies becomes more relevant as Zimbabweans deal with ever-increasing inflation.

Will a currency with such flimsy foundations be able to bear the strain of an unstable economy, or will the nation end up experiencing another hyperinflation similar to that of 2008? For many, the answer is obvious enough: the market rejects the RBZ’s attempts to force the ZiG on it more and more.

The average Zimbabwean is left to struggle with this economic uncertainty in the interim. The concept of the gap between policy and reality is not merely theoretical; for citizens struggling to make ends meet in an economy where official measures seem increasingly disconnected from reality, it is a daily battle.

The CZI has presented a reasonable substitute, but it is unclear if the RBZ will accept this new viewpoint or stick with its current course.

It’s evident that the RBZ’s efforts to bring the ZiG back could backfire if a different strategy isn’t implemented, further entrenching the currency in the eyes of the public. The future of Zimbabwe’s economy gets increasingly precarious the longer this gap continues.

This delicate balance calls for more than just minor adjustments to policies; rather, it necessitates a fundamental realignment of the relationship between the state and market forces, which feels more and more remote in the current context.

More: The Zim Bulletin