Date: 05 April, 2024
In a bold attempt to stabilize its long-struggling economy, Zimbabwe has introduced a new gold-backed currency known as ZiG, short for “Zimbabwe Gold”. This move marks the latest in a series of efforts to restore economic stability in a country that has faced repeated financial crises over the past 25 years.
Central Bank Governor John Mushayavanhu unveiled the new currency, explaining that ZiG would be structured and set at a market-determined exchange rate. This new currency replaces the Zimbabwean dollar, known as the RTGS, which had depreciated by three-quarters of its value this year alone. Zimbabweans now have a 21-day window to exchange their old, inflation-ridden notes for the new ZiG currency.
Annual inflation in Zimbabwe surged to 55% in March, a seven-month high, exacerbating the economic hardships faced by its citizens. The introduction of the ZiG is intended to curb this rampant inflation and bring a measure of stability to the economy. However, despite the introduction of the new currency, the US dollar will remain legal tender. Given its stability and widespread use, it is likely that the majority of Zimbabweans will continue to prefer transactions in US dollars, which currently account for 85% of all transactions in the country.
The new ZiG banknotes will come in denominations ranging from 1 to 200, with coins also set to be introduced. The introduction of coins aims to address the ongoing shortage of US coins, which has led to the unconventional practice of giving change in the form of sweets, small chocolates, and pens. Governor Mushayavanhu emphasized that the new currency would be rolled out immediately, with banks required to convert current Zimbabwean dollar balances to the ZiG. To prevent the new currency from suffering the same fate as its predecessors, Mushayavanhu committed to ensuring that the local currency in circulation would be backed by an equivalent value in precious minerals, primarily gold, or foreign exchange. This measure is designed to prevent the new currency from losing value and to rebuild trust in the central bank.
Zimbabweans’ skepticism towards the central bank is deeply rooted in history, particularly dating back to 2008 when the bank printed Z$10 trillion notes amidst runaway inflation. This hyperinflation led to the abandonment of the national currency in favor of foreign banknotes such as the US dollar and the South African rand. In late 2016, Zimbabwe introduced a new currency called the bond note, which was initially backed by a US dollar loan facility. Then-Central Bank Governor John Mangudya assured the public that the bond note would remain on par with the US dollar. However, this currency eventually crashed when the government began printing excess money, further eroding public trust.
The introduction of the ZiG represents a crucial step in Zimbabwe’s ongoing struggle to stabilize its economy. With the new gold-backed currency, the central bank aims to restore confidence and provide a stable medium of exchange. The success of this initiative, however, will largely depend on the government’s ability to maintain discipline in monetary policy and to back the currency with adequate reserves of gold and foreign exchange.
Despite these efforts, the US dollar’s dominance in the Zimbabwean economy is unlikely to wane quickly. The widespread use of the US dollar reflects deep-seated mistrust in the country’s own monetary system, a mistrust that has been reinforced by past failures. Nonetheless, the ZiG’s introduction offers a glimmer of hope for a more stable economic future.
As the new currency is implemented, it remains to be seen whether Zimbabwe can overcome its historical challenges and achieve lasting economic stability. The government’s commitment to backing the ZiG with tangible assets is a promising start, but the road ahead will require careful management and sustained efforts to rebuild public trust in the nation’s financial institutions.
Key Points:
- Zimbabwe introduces gold-backed currency ZiG to stabilize its economy.
- ZiG replaces the Zimbabwean dollar (RTGS), which lost 75% of its value this year.
- Annual inflation reached 55% in March, a seven-month high.
- Zimbabweans have 21 days to exchange old notes for the new currency.
- US dollar, used in 85% of transactions, remains legal tender.
- ZiG banknotes range from 1 to 200 denominations; coins to address US coin shortage.
- Banks must convert current Zimbabwe dollar balances to ZiG.
- ZiG is backed by gold or foreign exchange to prevent devaluation.
- Historic mistrust of the central bank due to 2008 hyperinflation.
- Previous bond note currency failed due to excessive money printing.
- ZiG aims to restore economic stability and public trust in the currency.
Reference:Â
https://www.bbc.com/news/world-africa-68736155