Understanding the Current Economic Landscape
In my previous article, I discussed the importance of moving away from the concept of a single currency. It’s clear that many individuals and groups initially resisted this idea, but over time, a more practical approach has been adopted. This shift in perspective is commendable, as it aligns with the economic realities of the country.
One of the key factors in understanding the current economic situation is the concept of money supply, particularly the term “M1.” In economics, M1 refers to the total amount of money in circulation, including cash, coins, and easily accessible bank deposits. This is often referred to as the “money base” or “narrow money.” The central bank is responsible for issuing this money, which we can call “M1ZiG.”
Zimbabwe presents a unique case where the central bank does not issue all the funds circulating in the economy. A significant portion of the M1 now comes from diaspora remittances. These remittances first became a notable economic factor in 2021 when they reached $1 billion per month. By 2023, this figure had increased to $1.3 billion. We can refer to this as “M1US$.”
However, when revealing money supply figures, the US$ component is often excluded, focusing only on the ZiG part. As of November 30, 2025, the ZiG money supply was approximately Z$90 billion, equivalent to about $3 billion. When considering the incoming funds from the diaspora over the period 2024/25, which totaled around $31 billion, the correct M1 figure becomes a combination of both components, totaling around $34 billion.
The Role of Central Bank Issuance
The money supply issued by the central bank represents only about 8% of the real and total M1. Given the ongoing influx of diaspora remittances at a rate of $1.3 billion per month, and the restricted issuance under a “tight monetary policy,” the percentage of central bank-issued money is decreasing each month. This percentage is currently around 1%, considering remittances before 2024.
This decline follows a mathematical pattern known as an “asymptote,” where the value approaches zero but never quite reaches it. This simple analysis highlights the irrelevance of the ZiG in the real economic mechanics of the country. Therefore, claims that the ZiG is “stable, has low inflation, has positive interest rates, and is better than the American dollar” are misleading.
Calling a currency with three exchange rates against the American dollar “stable with low inflation” would be considered a joke if the issue weren’t so critical.
The Impact of Currency Irrelevance
If the ZiG were to vanish overnight, nobody would notice. Coins in South African rand and Botswana pula would flood into the country as if by magic. Even if the central bank itself closed down and its key functions were transferred to a department in the Ministry of Finance, nobody would protest because the institution has failed to provide a functional currency for the past 20 years.
In my last article, I touched on the issue of foreign currency reserves. Maintaining these reserves is crucial for establishing a successful mono-currency system. It is also essential for the economic well-being of a country, as it helps control inflation and the exchange rate for the country’s currency. Repayment of the national debt also relies on these reserves.
Benchmarking Reserves for Economic Stability
A peer group parity analysis involving Botswana, South Africa, and Zimbabwe revealed the sorry state of Zimbabwe. Taking Botswana and South Africa as benchmarks, what optimum proportionate figure of reserves should the country have to achieve a stable economic environment similar to these peers?
The optimum figure is about $35 billion, adjusted for re-industrialization and re-tooling, given the population of 15 million. Over the years 2024/2025, the reserves “surged” from about $500 million to $1.2 billion. If we hold the “surge” figure constant at $500 million per year and the optimum target reserve figure constant at $35 billion, it would mean the country needs 70 (Yes, seventy) years to reach the optimum reserve figure needed TODAY to be at par with the two peers to safely introduce mono-currency. Let this sink in.
