"ZiG: Currency Evolution or Déjà Vu?"

The essential attributes of money, such as its role as a store of value and its divisibility, are critical for ensuring effective functioning as a medium of exchange in any economy. However, our history in Zimbabwe has repeatedly demonstrated our failure in this regard. The Zimbabwean dollar, in particular, glaringly fell short in maintaining these essential qualities. Before ZiG was introduced, a survey conducted by Andy Hodges underscored this stark reality: within six hours of receiving Zimbabwean dollars, whether as salaries or government payments, individuals would have already spent them.

By the end of 2023, the currency situation had escalated, with the parallel exchange rate of US$/ZWL hovering around 10,500, while the auction rate lagged at a 72% discount. The first quarter of 2024 saw further deterioration, with the US$/ZWL parallel rate soaring to 35,000, and the official rate trailing at a 43% discount. Clearly, addressing the currency crisis became paramount, prompting the new governor to start his tenure one month ahead of schedule.

The month of April was marked by extensive debates concerning ZiG, where doubts stemming from trust issues resulted in a 42% premium on ZiG parallel rates until the Financial Intelligence Unit intervened. Everyday citizens, including vendors and informal traders, hoped for small yet significant improvements from the new currency, such as easier access to change and reduced daily expenses. However, the introduction of ZiG notes and coins at the month's end proved challenging, leading to higher transportation and grocery costs due to premature price adjustments by certain retailers and the absence of ZiG equivalents to US$0.50 in both the formal and the informal sector.

After the issuance of notes and coins, banks fell short of the promised liquidity to handle change challenges, contradicting assurances from the governor. The recent initiative through Homelink branches, aim to distribute coins and notes more effectively. According to research, banks had only circulated 30% of the intended 80 million ZiG notes and coins. Consequently, this heightened the erosion of purchasing power among citizens, who are now using 10 ZiG notes for $0.50, even though the US$1 is pegged at 13.57 ZiG.

Reflecting on the aftermath of the two-month issuance, both positives and negatives emerge. Prices have stabilized in formal channels, facilitating transactions at crawling pegged exchange rates. However, sustainability remains uncertain given the fixed rate mandated by authorities. Stable currency alleviates pressure on corporations like Econet and Meikles, which previously incurred substantial exchange losses.

For instance, Telecoms Giant Econet saw 25% of its revenue in the reported fiscal year attributed to exchange losses. Similarly, the retail giant Meikles, operating through its flagship segment TM Pick n Pay, faced exchange losses totalling around US$16 million, significantly affecting the group's profitability. Clearly, a stable currency would reduce pressure on this line item and enhance shareholder value. As an analyst, I am closely monitoring whether ZiG will mitigate the effects of exchange losses on such companies, or if it will ultimately follow the pattern of its predecessors.

Currently, only about 2% of our population are participants in our capital markets. Some individuals, discouraged by past subdued performances, have chosen to step back, while others, lacking understanding of capital markets and seeing no incentives, have not considered participating. The periphery of spending money prevents them from participating, especially when there is no history of significant investor returns.

Since the adoption of ZiG, however, we have begun to see increased activity and liquidity on our local stock exchange, along with greater participation from foreign investors in daily trades. Can we attribute this positive trend to recency bias, or does it truly signify the beginning of a brighter future? I am inclined to believe it's the latter, provided that authorities avoid implementing poor policies along the way.

When people inquired about my views, I felt a strong inclination to adopt a pessimistic outlook on ZiG's introduction in April. However, I found myself encountering diverse opinions and decided to stick to my own analysis, remembering that analysts can hold differing viewpoints as long as they are grounded in reasonable basis. This principle applies equally to equity research, where diverse perspectives contribute to market dynamism and liquidity.

It's no surprise that one investor may be selling (bearish) while another is buying (bullish); such diversity is beneficial for market health. It's unfortunate that most people often seek other people’s views to reinforce their preconceived notions, falling into confirmation bias. There was a strong temptation to join the scepticism surrounding the new currency, especially given historical challenges with inflation and currency exchange rates. However, I chose to approach the situation impartially, focusing on factual analysis rather than emotional biases.

Whether I am viewed as a conformist or a contrarian, I leave that judgment to you, dear reader. I recognize both the shortcomings in ZiG's implementation and commend the positive outcomes of its rollout. Despite the challenges mentioned earlier, ZiG has played a crucial role in stabilizing exchange rates and revitalizing the local stock exchange (ZSE). Foreign investor confidence has notably increased, as seen in recent daily foreign purchases exceeding an average of US$100,000, a stark contrast to the less than US$10,000 recorded during the ZWL era.

The managed float exchange mechanism has upheld the currency's stability, providing investors with transaction security—a significant improvement from past uncertainties. Now, investors can sell their securities and maintain value until the settlement date. However, the sustainability of this trend depends on the actions that authorities take moving forward.

In my opinion, lingering concerns revolve around the convertibility and the prevalence of US dollar transactions in critical sectors such as manufacturing industry. The economy's use of multiple currencies, coupled with restricted availability of US dollars from banks, drives demand for the greenback through informal channels, potentially inflating exchange rates. It is essential for the central bank to ensure that the structured currency fulfills its role of being readily exchangeable if it is to ensure its long-term viability.

In conclusion, while ZiG addresses immediate currency challenges, its long-term success hinges on effective policy implementation and sustained public confidence. While ZiG faces teething problems, its impact on market stabilization and investor confidence is undeniable. Strategic management will be crucial in navigating future challenges to sustain its value and operational effectiveness.

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