Can Zimbabwe's ZiG gain confidence and replace the US dollar?

After repeated currency crises, Zimbabweans remain wary of ZiG.

Harare, Zimbabwe - The government is trying to persuade citizens to use their money more widely, with the long-term goal of reducing reliance on the US dollar. But after years of currency instability, many are still reluctant to trust the latest effort.

Zimbabwe Gold (ZiG), introduced in April 2024, is an attempt by the government to restore confidence in the local currency. The Reserve Bank of Zimbabwe (RBZ) says the currency is backed by foreign exchange and reserves of precious metals, including gold.

However, the challenge goes beyond introducing a new currency or bolstering its reserves. Zimbabweans, who have seen their savings lose value and wages shrink from successive currency crises, remain wary of holding money in a currency they fear will deteriorate in purchasing power.

Zimbabwe abandoned its local currency in 2009 after a period of hyperinflation and adopted a multi-currency system dominated by the US dollar. A domestic currency rebounded in 2018, but frequent instability has made it difficult to rebuild public confidence.

For primary school teacher Charles Mbwandarikwa, the experience of previous currency crises remains a warning.

He receives about a third of his salary at ZiG and says he would trade it quickly rather than keep it. His caution stems from the losses he suffered when Zimbabwe's previous currency collapsed.

He lost his retirement savings during the 2009 recession. When the local currency was reintroduced in 2018, he says, his salary dropped from $540 to $40 by the end of that year.

Such experiences help explain why official assurances about ZiG have not necessarily translated into trust among profiteers.

RBZ seeks to strengthen the currency's credibility. On April 7, the bank introduced an upgraded series of ZiG notes with revised designs and security features.

According to the RBZ, ZiG annual inflation reached 3.7 percent last month. But relatively low inflation alone does not guarantee that people will choose to save currency or use it for everyday transactions.

Economist Cornelius Dube says demand for ZiG is weak.

"ZiG should be available in proportion to demand. Demand for ZiG is very low right now," he says.

For businesses, customer acceptance of a currency is a practical test of whether it can take on a larger role in the economy.

Sesedzai Chigumira, a clothing retailer, says he has only had a handful of sales at ZiG. His experience highlights the difficulty in encouraging wider use of a currency when consumers and businesses are more comfortable transacting in US dollars.

The government's effort to reduce dependence on the dollar also faces a broader challenge: the existence of gold and other mineral resources does not in itself guarantee confidence in a currency. People need to believe that it will hold its value and will be useful for paying for goods, meeting expenses and saving for the future.

Where businesses expect customers to prefer dollars, they may be reluctant to price goods or accept payment in ZiG. Consumers, on the other hand, have little incentive to hold the local currency if they are worried about the depreciation of the local currency.

This creates a cycle that policy measures alone may struggle to break.

The RBZ has moved away from its previous goal of adopting the single currency by 2030, and is instead charting a gradual, market-driven transition to greater use of the ZiG. This approach depends on sustained macroeconomic stability and conditions that encourage businesses and consumers to voluntarily use the currency.

The central bank is also looking to expand ZiG's role in domestic transactions, including through its use in tax payments and public sector transactions, alongside measures affecting foreign exchange and national payment systems.

But wider use in payments is not the same as trusting a currency as a store of value. People may use ZiG when necessary or when circumstances leave them with little choice without wanting to keep their savings in it.

For Mbwandarikwa, the memory of losing his retirement savings remains part of the reckoning. For Chigumira, the limited number of customers paying in ZiG shows how far the currency still has to go before it becomes a normal part of business.

Dube says de-dollarization is possible, but it cannot be achieved overnight. "History shows that de-dollarization is possible, although it is not easy," he says. It takes time."

For Zimbabweans who have lived through repeated currency crises, the test will be whether ZiG can sustain its income and savings over time. Expanding its use through policy may be possible, but convincing people to trust it requires lasting stability and confidence in the currency.

"Policy should not become coercive, but should create the necessary incentives that will ultimately make both businesses and consumers indifferent to holding the ZIG or the US dollar," Dubey said.