The Reserve Bank of Zimbabwe encourages banks to increase their ZiG lending since the local currency remains stable. Banks have reduced ZiG lending because they worry about liquidity problems. RBZ Governor Dr John Mushayavanhu believes financial institutions should feel more confident because the risk of currency decline has decreased significantly.
The Governor stated during a recent ZTN Prime Podcast that ZiG has shown stability and even gained value against the US dollar on both official and street markets. He mentioned that financial institutions miss potential earnings by avoiding loans because they fear currency value drops might eliminate interest profits. Dr Mushayavanhu emphasized that nearly twelve months of currency stability should prompt banks to reconsider their lending strategies.
After launching in April last year, ZiG maintained its value at approximately 13 against the dollar before falling to about 24.4 by September 27. The rate closed at 26.5 per dollar last Friday. Street market rates peaked around 42 but have improved to roughly 32 against the dollar. The central bank leader addressed concerns about how contractor payments might affect currency stability.
He explained that the Treasury Department makes payments using existing money collected through taxes rather than creating new funds. Currency problems previously happened when government contractors received payments and bought foreign currency through unofficial channels. Dr Mushayavanhu clarified that neither the Treasury has borrowing facilities at the central bank nor does the Finance Ministry want to use such options.
The current currency stability removes financial advantages for contractors seeking hard currency at premium rates since such transactions would result in financial losses. With upcoming Quarterly Payment Dates, demand for ZiG should increase as people need local currency to pay taxes. Dr Mushayavanhu noted that back in December, banks contacted ZiG holders offering to purchase their holdings because many companies had foreign currency but needed ZiG for tax payments.
According to the governor, foreign currency reserves consisting of gold and international assets approach $600 million. He calculated that dividing the $14 billion ZiG deposits by these reserves produces an exchange rate of approximately 22 ZiG per dollar. Public acceptance of ZiG has been promising since its introduction, with local currency transactions increasing from 20 percent to 30 percent despite agricultural challenges caused by drought conditions.
The Governor stated during a recent ZTN Prime Podcast that ZiG has shown stability and even gained value against the US dollar on both official and street markets. He mentioned that financial institutions miss potential earnings by avoiding loans because they fear currency value drops might eliminate interest profits. Dr Mushayavanhu emphasized that nearly twelve months of currency stability should prompt banks to reconsider their lending strategies.
After launching in April last year, ZiG maintained its value at approximately 13 against the dollar before falling to about 24.4 by September 27. The rate closed at 26.5 per dollar last Friday. Street market rates peaked around 42 but have improved to roughly 32 against the dollar. The central bank leader addressed concerns about how contractor payments might affect currency stability.
He explained that the Treasury Department makes payments using existing money collected through taxes rather than creating new funds. Currency problems previously happened when government contractors received payments and bought foreign currency through unofficial channels. Dr Mushayavanhu clarified that neither the Treasury has borrowing facilities at the central bank nor does the Finance Ministry want to use such options.
The current currency stability removes financial advantages for contractors seeking hard currency at premium rates since such transactions would result in financial losses. With upcoming Quarterly Payment Dates, demand for ZiG should increase as people need local currency to pay taxes. Dr Mushayavanhu noted that back in December, banks contacted ZiG holders offering to purchase their holdings because many companies had foreign currency but needed ZiG for tax payments.
According to the governor, foreign currency reserves consisting of gold and international assets approach $600 million. He calculated that dividing the $14 billion ZiG deposits by these reserves produces an exchange rate of approximately 22 ZiG per dollar. Public acceptance of ZiG has been promising since its introduction, with local currency transactions increasing from 20 percent to 30 percent despite agricultural challenges caused by drought conditions.
