The new ZiG currency needs to be subject to largely stable exchange rates and be accepted and be as useful as possible as it grows to become first the main currency for transactions and eventually after 2030 to be the currency used in all internal transactions.
While the exchange rate is set by the commercial banking sector, the private sector banks to be precise, without intervention by the authorities, the other two areas do require intervention by the Reserve Bank of Zimbabwe and its Financial Intelligence Unit (FIU).
The stability of the ZiG in the first two weeks since its introduction has been spectacular. In the nine trading days within the banking system from 8 April the interbank exchange rate showed the ZiG strengthening marginally each day against the US dollar, and ending cumulatively 1,8 percent stronger by the end of last week.
While there was probably not much buying or selling of currencies in the first week, as banks concentrated on modifying their systems to accept the ZiG and in several cases taking the opportunity to upgrade systems, last week saw the continual daily marginal strengthening with normal trading.
The daily changes are minute, which is the norm around the world with almost all currencies, trends taking time to be apparent and the minute daily changes within the weighted average of the rates used by each Zimbabwean commercial bank as it buys foreign currency from one set of customers and sells it another set are what is expected from a stable currency.
While to an extent the exchange rate is tied to the price of gold, because of the Reserve Bank gold reserves dedicated to covering the currency, the cover of two to one means that there would have to be very large fluctuations in the gold price before the pure market forces between willing sellers and willing buyers could be affected by external factors.
The law in Zimbabwe permits the multi-currency regime now in place and guarantees it until 2030, but it also requires all who buy and sell goods and services to accept all legal currencies, and that includes the ZiG as well as US dollars. The choice is made by the customer, not the seller.
So last week the Reserve Bank, through its FIU, froze the bank accounts of 11 companies that were refusing to accept payments in ZiG and insisting on payments only in US dollars. The law allows civil penalties in such cases, where a criminal prosecution and conviction is not needed but the offender pays over what is the equivalent of a fine to the authorities.
RBZ Governor Dr John Mushayavanhu said in an interview also last week that such penalties were being levied, although he did not want, at this stage at least, to name those the FIU had caught. But in the past persistent offenders have been named, and if criminal charges are ever laid, obviously their names must come out.
The main point at the moment is that the business world is aware that they are being watched and that they need to be compliant with the law. The exchange rate to be used is the intermarket rate, and while Dr Mushayavanhu, and for that matter the International Monetary Fund, strongly dislike the 10 percent premium that shopkeepers are allowed legally to offer, the law has yet to be changed although some major businesses are now reducing the premium or even ditching it.
One duty, or additional duty, to be laid on the FIU is to see how businesses are spending their ZiGs. Some, and perhaps those who as a result of frozen accounts are going to have to accept ZiGs, may be trying to rush out to buy US dollars on the black market so that they do not keep their ZiGs, even for taxes. Attempts to feed the black market also need to be stopped.
The introduction of a range of bank notes and a couple of coins at the end of this month needs to be managed carefully, and Dr Mushayavanhu has been very careful to state that these ZiG notes will be "drip-fed" into the market. He has seen in the past the sort of abuses that can arise when banknotes are made available.
At present all ZiG transactions are electronic, either through a bank, usually with a swipe card, or through a mobile transaction provider. US dollar deals tend to use a lot more cash, with major change problems at supermarket tills when people have to buy chocolates or ballpoint pens to round off a purchase, or accept a token.
The ZiG notes and coins can provide a greater convenience for smaller transactions, with the largest value note, the ZiG200, being worth a whisker over US$15, but they need to be distributed fairly evenly across all account holders. Past experience has seen corrupt shopkeepers and sloppy banks handing out bricks of notes to black market dealers, and that creates its own distortions. We have even had street dealers charging premiums for cash.
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The Reserve Bank needs to maintain the pressure for electronic payments.
Normally the transaction charge, plus the tax, a bank levies for a cash withdrawal is slightly more than the bank charge and tax for an electronic transaction, so many prefer to go digital. But there are some who want the anonymity of cash.
And cash is needed for things like some bus and kombi fares. For the past couple of weeks the old US$0.50 fare has risen to US$1.
As the ZiG continues to exhibit its stability, with very small weekly and monthly changes and in future these could go in both directions but must still be small, some of the measures now needed will no longer be required. But so long as we have a dual currency, the capacity of manipulators is enhanced, and they need to be reined in hard.
