MINES and Mining Development minister Winston Chitando and his deputy Polite Kambamura will be sacked should they fail to provide minerals to back the Zimbabwe Gold (ZiG) currency, it has been revealed.
This comes as Treasury is moving to designate parallel market dealings in foreign currency as money laundering and stipulate stiffer and harsher penalties on those caught dealing in forex to help shore up ZiG’s value.
Last year, miners were mandated to pay half of their royalties in the mineral they mine to shore up the central bank’s reserves with the Mines and Mining Development ministry tasked with the collection of the minerals.
The ZiG currency is currently swimming against a very high inflationary current that continues to significantly erode public and private incomes as well as consumer spending power.
Speaking in South Africa, at a two-day Zimbabwe Investment Summit 2024, hosted by the diaspora in partnership with the Finance, Economic Development and Investment
Promotion ministry and other partners, Kambamura said: “The President [Emmerson Mnangagwa] had to put our heads on the line by approving the structured currency, which is backed by minerals. If we fail to put the required reserves in the RBZ (Reserve Bank of Zimbabwe) vault, then myself and my minister are gone,” he said, on the second day of the summit last Friday.
“So, we are working tirelessly to make sure that the Reserve Bank’s reserve vaults are fully packed. Zimbabwe is endowed with a lot of minerals, but before I proceed, I just want to give you some takeaways. Zimbabwe hosts one of the biggest platinum deposits after South Africa in the world. We are one of the top five lithium producers in the world and the largest lithium producer in Africa.”
He said what they did not have currently was the capital to upscale mining production.
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In recent weeks, the authorities arrested several illegal forex dealers in Harare’s central business district and other towns across the country to push the uptake of ZiG.
However, economists have warned that no matter how many arrests are made or stiffer penalties enforced, as long as the ZiG lacks proper backing, parallel forex dealers will always find an arbitrage.
Further, these experts have noted that the inability to freely access foreign currency from formal financial institutions will always create demand for the money on the parallel forex market.
While ZiG can now be used to pay for fuel, it cannot be used to obtain passports and pay for other government services, lowering demand for it on formal markets.
While the official forex rate is US$1:ZiG13,5540, businesses and retailers are using a rate of between ZiG14 and ZiG16, against the greenback.
Meanwhile, parallel forex dealers are pricing foreign currency at US$1:ZiG15 if they are buying the greenback, but charging as much as US$1:ZiG22 when selling the United States dollar.
“We are already dealing with those who are dealing in the parallel market. We are enforcing the law to make sure they are not breaking the law because it’s money laundering — very simply, money laundering. We are dealing with it as such, so some will be fined and some will be jailed that is how the law works,” Finance minister Mthuli Ncube said, on day one of the summit.
“So here, we are taking action. But, what’s important is that we should not give them an opportunity. The opportunity is that if the currency is unstable, in the first place because maybe we, as the authorities, have done something or this or that, really, we should not give them that opportunity.”
He said the ZiG’s design was very similar to a typical currency board, but with more flexibility.
“The whole currency board is a hired currency board with a fixed exchange rate. Ours is not fixed; it fluctuates, but the design is such that you can only increase the money supply, what we call M0 or reserve money, if there are enough reserves to back the reserve money in the first place,” Ncube said.
“So, that is a measure of discipline that we have built into the design of the currency to make sure we do not give the speculators an opportunity. Even with those who find an opportunity, we will use the law to deal with them.”
The ZiG currency was adopted due to the massive depreciation of the Zimdollar that depreciated by over 700% last year, and more than 250% in the first quarter.
Zimdollar’s demise was chiefly caused by government printing money with no backing to deal with rising costs as foreign currency sources were low and still remain so.
