Zimbabwe has a new currency – the country’s sixth in 10 years! The new currency launched on 5 April by the newly appointed Reserve Bank Governor Dr John Mushayavanhu during his inaugural Monetary Policy Statement (MPS) is called Zimbabwe Gold (ZiG). Launching the new currency, the Reserve Bank Governor said the country’s latest currency is “structured” as it is “anchored by a composite basket of foreign currency and precious metals (predominantly gold) held as reserves for this purpose by the Reserve Bank.”
The launch of the new currency comes at a time when its predecessor the Zimbabwe Dollar (ZWL) had lost much of its value – recording a 70% slide since the start of this year alone! In turn, this had pushed inflation figures high thus putting the prices of basic commodities and services beyond the reach of many. The launch of the new currency thus has been heralded by many economic analysts as a positive step in addressing the country’s inflation challenges.
The Reserve Bank Governor does share the same sentiments as he said, “If we implement these measures (adopt the new currency), we expect them to have an impact on inflation,” during his Monetary Policy Statement presentation. He also went on to state that replacing the Zimbabwe Dollar with the Zimbabwe Gold currency was imperative as “public outcry over excessive bank charges, problem of change, rejection of soiled US dollar notes and inconvenience of small Zimbabwe dollar denominations, has rendered the Zimbabwe dollar ineffective as a store of value and means of exchange.”
Owing to the devaluation of the Zimbabwe Dollar, most transactions in the country in the past few years, almost 80% were conducted in foreign currency mostly the United States Dollar (USD) something which the new apex bank governor acknowledged when he said, “we are doing what we are doing to ensure that our local currency does not die. We were already in a situation where almost 85% of the transactions are being conducted in U.S. dollars.”
While praising his predecessor Dr John Mangudya and the government for sustaining an optimal currency mix in the multi-currency system, the new central bank governor said he saw it fit from the onset of his tenure to implement drastic measures to rebuild market confidence and trust and at the same time, enhance the central bank’s policy credibility.
Governor Mushayavanhu said the introduction of the new currency is with immediate effect albeit with the citizens and businesses given 21 days to exchange old notes for new ones. Banks, mobile money operators as well as other financial institutions that were instructed to convert Zimbabwean dollar balances have already started doing so with some of the early pacesetters having already finished the exercise. Financial institutions were instructed to convert Zimbabwe dollar balances to ZiG using the official interbank rate for April 5, 2024.
“With effect from April 5, 2024, banks shall convert the current Zimbabwe dollar balances into the new currency, which shall be called Zimbabwe Gold (ZiG) to foster simplicity, certainty and predictability in monetary and financial affairs… The swap rate will be guided by the closing interbank exchange rate and the price of gold as of April 5, 2024,” he said. After the conversion, the Reserve Bank Governor said the willing buyer willing seller interbank rate would be used to convert into the country’s newly introduced structured currency.
In line with the recent developments as reported by The Herald, Dr Mushayavanhu said all Zimbabwe dollar loans and advances made by the sector, Treasury Bills, outstanding auction allotments, export surrender obligations, prices of goods and services in Zimbabwe and any other Zimbabwe-denominated obligations, would be converted to ZiG.
Despite launching the new currency, Dr Mushayavanhu said he wants to persist with the central bank’s policy of a cash-lite economy. Owing to this, he said “These (new) notes shall be issued gradually in the market to cater to small transactions and to ensure the availability of change, thus, mitigating the use of retail vouchers in the local economy. As such, the proposed denominations will bring convenience to the transacting public.”
Some of the other measures announced by Governor Mushayavanhu meant to address exchange rate volatility, curtailing inflation and restoring macro-economic stability include “recalibrating” the main interest rate to 20% from 130%. The Governor however didn’t elaborate on why the Reserve Bank reached this drastic cut.
Despite the reassuring words from the new Reserve Bank Governor, several economists and the general populace are sceptical about the success of the new currency. This isn’t surprising considering the raft of currency reforms and other measures implemented by the Zimbabwean government in the past which have failed to bear any fruit. Chief among these being the introduction of bond notes said to be backed by a bond held with Afreximbank in 2016 and the introduction of the Zimbabwe Dollar in 2019, the same year in which the country adopted the multi-currency policy.
Economics Professor Gift Mugano said, “We want a functioning currency so that we can generate savings, investments, pensions, and build a prosperous economy.” However, the same old “disagreements clearly drawn on political lines” are still visible and hence will most likely lead the Zimbabwe Gold to the same graveyard where all other Zimbabwean currencies have gone.
Economist Godfrey Kanyenze chipped in saying “We now end up in the same place where we started – where assurances are being given to the market that the government will live within its means… The political culture has not changed – the critical point is discipline on the part of the authorities.”
Jacques Nel of the research firm Oxford Economics weighed in with more or less the same sentiments saying, “There was dire need for drastic change in the Zimbabwean monetary system… A lack of credibility in both the domestic currency and the framework that governed it – but it is that same lack of credibility that casts doubt over the effectiveness of these new measures.”
Zimbabwe monetary policy committee member Persistence Gwanyanya however was optimistic about the success of the currency saying, “I am confident because the monetary policy has strong backing of the executive and everyone in government. It is all about improving; we know better now and with hindsight, we have been given an opportunity to correct mistakes.”
