The Reserve Bank of Zimbabwe, infamous for printing 100 trillion Zimbabwean dollar notes in 2008, announced on Friday, April 5, 2024, the launch of ZiG, the new national currency. This institution pledges once more to bring an end to years of monetary turmoil.
Launch of ZiG : Currency backed by Zimbabwean gold
The central bank of Zimbabwe has unveiled a new currency backed by gold in a bid to tackle soaring inflation and stabilize the country’s long-troubled economy. Named ZiG, short for Zimbabwe Gold, it replaces the Zimbabwean dollar, which has witnessed a sharp decline in value over the past year, resulting in record-high inflation rates.
« Starting today, banks will convert current balances in Zimbabwean dollars into the new currency », announced Reserve Bank Governor John Mushayavanhu while presenting a monetary policy statement. He also revealed a significant reduction in the bank’s primary interest rate, slashing it from 130 % to 20 %.
ZiG will be « fully anchored and fully supported » by a basket of reserves, including foreign currencies and precious metals, primarily gold, added Mushayavanhu. This decision aims to promote « simplicity, certainty, and predictability » in Zimbabwe’s financial affairs. Additionally, the central bank unveiled the new banknotes, available in eight denominations ranging from 1 to 200 ZiG.
Plunge of the Zimbabwean Dollar
In the past year alone, the Zimbabwean dollar has plummeted by nearly 100 % against the US dollar. On the day of this announcement, the official exchange rate pegged the Zimbabwean dollar at approximately 30,000 to one US dollar, with rates soaring to 40,000 on the black market due to heightened demand.
Official data attributes this rampant inflation to Zimbabwe’s dismal economic performance. The dire situation compounds the hardships faced by the nation’s 16 million inhabitants, who already struggle with pervasive poverty, soaring unemployment rates, and the devastating effects of severe drought exacerbated by the El Niño weather phenomenon.
Zimbabwe’s gold reserve sufficient to back its currency
« Zimbabweans have 21 days to convert their old currency into the new one. The new bills feature a motif of gold bars being minted, along with the famous Balancing Rocks of Zimbabwe, which were already present on the old bills », stated Mushayavanhu.
With abundant gold deposits, Zimbabwe aims to ascend to the ranks of the top gold producers in Africa. Official data indicates that the precious metal accounted for nearly 25 % of all exports in January. However, analysts question whether Harare possesses adequate reserves to effectively support the currency, especially considering the potential volatility of gold prices.
A day before this announcement, President Emmerson Mnangagwa conducted an inspection of the central bank’s vaults, which hold 1.1 tonnes of solid gold. Additionally, the bank holds nearly 1.5 tonnes abroad, along with 100 million USD in cash and precious minerals such as diamonds. If converted to gold, these assets would contribute an additional 0.4 tonnes.
Overall, the value of reserves amounts to 285 million USD, « surpassing three times the coverage of the current ZiG currency in circulation », as indicated by Mushayavanhu.
Convincing the most skeptical
« We clearly need more », declares economist Prosper Chitambara, emphasizing that other neighboring nations like South Africa have much larger reserves.
The larger the guarantee reserves, the stronger the confidence and the ability to protect a currency against shocks. The central bank asserts that it will implement a stringent monetary policy by aligning the growth of the money supply with that of gold and foreign currency reserves.
Billions of USD in inflation
The staggering inflation rates in Zimbabwe harken back to the hyperinflation crisis of 2008, a time when the spiraling prices prompted the central bank to issue the iconic 100 trillion Zimbabwean dollar note, now a prized collectible.
Subsequently, the authorities were compelled to abandon the local currency, adopting the US dollar as the official legal tender. Despite the reintroduction of the Zimbabwean dollar in 2019, the currency encountered the same pitfalls as its predecessor.
The preference among most Zimbabweans is to conduct transactions, receive payment, and safeguard savings in US dollars. Many workers, receiving salaries in the local currency, hastily exchange it for US dollars on payday. Despite government efforts to stabilize the economy, including the issuance of gold coins and the introduction of a gold-backed digital currency, tangible improvements still need to be made.
Hopes are now pinned on ZiG, the new currency of Zimbabwe, to reinvigorate the country’s economy.
