Zimbabwe's Crackdown on Unofficial Market Drives ZiG Currency Transactions to Banks

Source: The Zimbabwe Mail

HARARE, -- A month-long drive by Zimbabwean authorities to curb the unofficial market for their new gold-backed currency, the ZiG (Zimbabwe Gold), is forcing transactions off the streets and into the banking system.

Zimbabwe has imposed fines for conducting transactions outside the official exchange rate of the ZiG, introduced in April as the nation's sixth attempt in 15 years to establish a stable local currency.

"The parallel market is not as loud and visible as it was before the latest blitz," said Lawrence Nyazema, president of the Banker's Association of Zimbabwe. Lenders are seeing "an uptick in formal market activity," he noted.

Street dealers across the country have been forced to abandon their regular city-center spots, instead switching to mobile phone messenger platforms to avoid detection.

The crackdown mirrors measures by other regional governments where local currency depreciation has driven inflation, causing a cost of living crisis and public unrest.

The local currency was trading at 13.31 per dollar on Tuesday, up 1.9% from its launch price of 13.56.

The ZiG is backed by 2.5 tons of gold and $100 million in foreign currency held at the central bank, which vows not to print more ZiG notes than can be supported by reserves.

Printing money to finance government spending undermined previous attempts to establish a local currency, leading to sky-high inflation and collapsing values against the dollar.

Speculation in the unofficial market contributed to volatility, prompting authorities to target street traders as a primary cause for the demise of the Zimbabwe dollar, which the ZiG replaced on April 5.