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Currency Concerns Rise as Businesses Struggle for Foreign Currency Access

Zimbabwe holds rates steady at 20 percent as new ZiG notes hit the streets

Businesses are encountering difficulties accessing foreign currency from banks to finance the procurement of necessary inputs for production, a situation that analysts fear could lead to widespread rejection of Zimbabwe’s new currency, the Zimbabwe Gold (ZiG).

In 2009, Zimbabwe was compelled to abandon its domestic currency for the first time due to market rejection following massive hyperinflation. Although reintroduced in February 2019, the domestic currency has faced volatility and high inflation, diminishing its appeal among economic stakeholders.

Authorities have been vigorously promoting the acceptance of ZiG since its launch on April 5, 2024, aiming to replace the inflation-ridden Zimbabwe dollar. However, similar to its predecessor, ZiG has struggled to gain traction, with most market participants preferring transactions in foreign currency, particularly US dollars.

The persistently high premium between the official and parallel market exchange rates has exacerbated the challenges facing the new currency. Reports indicate several issues hindering ZiG’s acceptance, including concerns regarding its convertibility and limitations on the purchase of essential goods.

Presently, ZiG cannot be used to buy fuel, an imported commodity requiring foreign currency for purchase, resulting in traders exclusively pricing fuel in hard currency.

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Limited US dollar liquidity in the formal market has led producers to demand payment exclusively in US dollars, further exacerbating the challenges. Zimbabwe relies heavily on imports for raw materials following the collapse of local production capacity during the economic crisis up to 2008, with the 2023 import bill exceeding US$9.2 billion.

The Confederation of Zimbabwe Industries (CZI) has highlighted opportunities to address issues surrounding the local currency, emphasizing the need to ensure ZiG’s convertibility for all legitimate transactions and utilize transactional demand to build reserves backing the new currency.

Also read: Westminster International School Sparks Controversy with ZiG Exchange Rate

Confederation of Zimbabwe Retailers President Denford Mutashu expressed concerns over manufacturers’ challenges in accessing forex from banks to procure inputs, emphasizing the necessity for measures to capacitate banks to support productive sectors.

Finance and Economic Development Minister Mthuli Ncube emphasized the use of the official exchange rate for pricing goods, despite challenges in accessing forex at the official rate due to shortages in the formal market.

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However, industry sources suggest discrepancies between official claims and the ground reality, with banks facing forex shortages and exporters holding onto their foreign currency. While the Reserve Bank of Zimbabwe (RBZ) has reportedly commenced forex sales to importers, challenges persist, including disqualifying ZiG loan holders from accessing forex.

Economists and industry stakeholders warn of confusion surrounding ZiG, potentially leading to its rejection by the market. Concerns include discrepancies in currency value perceptions and experiences of informal sector players who faced losses during currency conversions.

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