By Itai Zimunya
The Reserve Bank of Zimbabwe (RBZ) recently floated the ZiG in a policy process to stabilize the consumer price index and remove arbitrage costs in the economy. At a macro level, it is crucial to ask if the ZiG is a complement or impediment to Zimbabwe’s aspiration for growth. Is it the best currency we can have as a nation?
This article briefly highlights some key issues and concludes with a call for Zimbabwe to institute and ensure sound money as part of the push for a prosperous Zimbabwe. Sound money is defined as money that has a purchasing power determined by markets, independent of Government.
Present day Zimbabwe uses the ZiG as its official business currency. However, since the multi-currency regime is still in place, the United States dollar is still the dominant currency of trade and saving in Zimbabwe. The South African Rand (ZAR) and the Botswana Pula (Pula) also work in hinterlands towards Beitbridge and Plumtree respectively.
For starters, we commend the Government of Zimbabwe for floating the ZiG since market dynamics often reflect a currency’s true value. The question then becomes- is the floating of the ZiG adequate to propel Zimbabwe?
Firstly, the ZiG is very scarce in Zimbabwe making it hard for ordinary consumers to use it as a currency of transaction or saving. Secondly, the ZiG is surrounded by inflationary pressures measured at 84.7% as of April 2025. This means that the ZiG is not stable and added to its scarcity, ranks low in terms of public confidence. This means that the USD, will all its challenges, remains the dominant currency of transaction and trading in Zimbabwe.
That means Zimbabwe has a very poor sound money rating, even using Zimbabwe’s own government and people’s perceptions. The government and its departments continue to peg some fees in foreign currency. On the other hand, local traders also often reject or put a high premium on the ZiG rate when transacting. This forces people to look for the USD, ZAR or Pula -thereby further pressuring the ZiG as people and small businesses shun it.
It is important to highlight that the perceptions and choices of ordinary citizens and small businesses matter as they drove 74% of business transactions in the year ending December 31 2024 by purchasing power parity valuation.
This means that the government of Zimbabwe has to prioritize stabilizing Zimbabwe’s local currency through committed policies to contain inflation, free the money market and having confidence in it by using the currency for all official business including foreign trips.
Coupled with the freedom to trade, clear and fair business regulation, enforcing a fair legal system with property rights and reducing the size of the public sector- Zimbabwe will rise. There is no reason Zimbabwe’s aspirations of building competitiveness as represented by the National Competitiveness Commission (NCC) will fail with a limited government and a robust private sector supported by clear, predictable, fair policies and taxes.