IN an interview with The Zimbabwe Independent, Reserve Bank of Zimbabwe governor John Mushayavanhu said he had put in place measures that would make the Zimbabwe Gold (ZiG) convertible to boost confidence in the structured currency.
“So if you have a genuine foreign currency payment to make, be it school fees that you need to pay to a university, be it services that you want to pay for, be it a genuine import, as long as it is legitimate, you will be able to go to your bank and they will be able to convert it. That way, people will have confidence in that currency. Confidence cannot be legislated. It has to be earned,” Mushayavanhu said.
In subsequent meetings, Mushayavanhu said the government will remove the 10% mark up on the interbank rate being used by retailers because it was making goods and services expensive in local currency.
He also said fuel operators will be left with no oiption, but to sell in ZiG to mobilise enough local currency for the payment of their tax obligation in local currency during the quarterly payment dates (QPDs). The second QPD is on June 25 in which corporates are expected to pay 25% of their yearly tax.
This, coupled with the insistence by monetary authorities that ZiG is backed by reserves in the form of gold and cash and that they increase the money in circulation in tandem with any increase in reserves, will indeed help to build confidence in ZiG.
Mushayanhu’s declaration that not “under my watch” will the central bank engages in quasi-fiscal operations has also projected him as “his own man” who would withstand political pressures to undertake activities that harm the local currency.
We believe the new central bank chief has ticked most of the boxes under his purview to make ZiG work.
However, we feel his work is being undone by the blitz on illegal foreign currency dealers on the streets.
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History has shown that when the foundation is solid, foreign currency dealers will vanish from the streets. During the multi-currency era, illegal foreign currency traders left the streets because there was no one coming to buy foreign currency.
The freezing of companies accounts by the Financial Intelligence Unit (FIU) can only work up to a certain point. For instance, FIU can only freeze the account for 14 days and is expected to unfreeze after that.
Are the blitzes a lasting solution? Certainly not. The lasting solution is to put in place confidence building measures that makes the ZiG the go-to currency. Charging duties in ZiG is much more powerful than chasing after illegal foreign currency dealers on the streets. They will run away from the streets if ZiG becomes the currency of choice.
We urge authorities to go for moral suasion and cut the coat according to the size of the cloth for ZiG to work. The first weeks have shown that ZiG is gaining confidence among the public. So, indeed, Mushayavanhu said, confidence is never legislated, but is earned.
