Illegal currency traders have disappeared on the streets of Zimbabwe's capital Harare as authorities crack down on illegal money-trading in a bid to maintain the value of the new Zimbabwe Gold (ZiG) currency. The Reserve Bank of Zimbabwe (RBZ) on April 5 introduced the new gold-backed ZiG, replacing the Zimbabwean dollar, which had been ravaged by inflation. The ZiG is part of a basket of currencies accepted as legal tender in Zimbabwe, including the U.S. dollar. The greenback is now used in over 80 percent of all domestic transactions, according to Zimbabwe National Statistics Agency. The new currency is backed by precious minerals, mainly gold, as well as foreign currency reserves, according to the central bank. While the ZiG has largely remained stable on the formal market since its launch, the currency has been trading above the official market rate on the parallel market. Authorities said illegal money traders are responsible for driving exchange rate speculation in the parallel markets. The state-run newspaper Herald on Wednesday said over 200 currency traders have since been arrested for illegal currency trading. The ZiG was trading at 13.40 to one U.S. dollar on May 16, according to RBZ daily updates. On the black market, however, it is being traded at 14-18 to the U.S. dollar. Since its introduction, the local unit has actually depreciated significantly versus the U.S. dollar, economist Zvikomborero Sibanda told Xinhua on Wednesday. That's why you have seen some drastic measures... taken by the financial intelligence unit of the central bank, which is freezing some bank accounts of those companies which are continuing to exclusively trade in U.S. dollars. Lack of trust in the local unit and demand for foreign currency have seen people going to the parallel markets to dump the ZiG in exchange for the U.S. dollar, Sibanda said. It will need time for the authorities to ensure that we have a mindset reset so that people start to believe in their currency going forward, he said. In addition, Sibanda said, Zimbabwe's weak industrial production means demand for foreign currency will remain high to cover the import bill. As long as we don't address issues to do with production, we will continue to face challenges with currency substitution in the market, as traders will prefer the U.S. dollar over the ZiG, because they would want to use the U.S. dollar for funding imports, he added. In addition, Sibanda said, the drought now facing the country, which has affected domestic food production, means that demand for the U.S. dollar to import food will be strong, further piling pressure on the local currency. While authorities have made strides in driving currency traders away from the open streets, there are concerns that illegal currency trading may have simply shifted underground. Some businesses are also avoiding the local currency, which further drives demand for foreign currencies. In some shops, there are some items that cannot be purchased with ZiG. So we are forced to find substitutions that can be purchased with ZiG, said Brian Phiri, a Harare resident. Noreen Chirombo, a street vendor, said the use of the ZiG is still limited since landlords do not accept the local currency. We wish to pay rent in ZiG because it's our own currency, she told Xinhua. We hope that landlords accept the ZiG since it is the official currency of Zimbabwe. Last week, the government announced that individuals and companies will be penalized if they reject the local currency, or if they don't use the official exchange rate. Zimbabwe adopted a multi-currency regime in 2009 to bring stability to the economy, following years of hyperinflation.
