ZiG era: Will Zim break the ‘currency jinx’?

Nyashadzashe Ndoro

ZIM NOW REPORTER

Analysts have raised concerns about transparency, public trust, and long-term sustainability of Zimbabwe’s new gold-backed currency, the Zimbabwe Gold.

The government launched a new currency last week in a bid to tackle hyperinflation and stabilise the economy. The ZiG, which is backed by a basket of foreign currency and precious metals, replaces the Zimbabwean dollar (ZWL) and is intended to restore trust and confidence in the financial system.

Analysts are, however, divided on the potential success of the ZiG. Some experts, like economist Tinashe Murapata, express concerns about the transparency and sustainability of the new system. Murapata questions how the central bank will manage the money supply and interest rates, particularly considering the government’s history of overspending.

“There is every reason to believe GOZ (Government of Zimbabwe) will legally use its RBZ overdraft, which at 20% of last years’ revenue is enough printing to sink ZiG,” Murapata said. “GOZ has a line of suppliers it must pay, it will now do so with ZiG and with abandon. That’s what history teaches us.”

The conversion process from ZWL to ZiG has already begun, with the Reserve Bank of Zimbabwe assuring a smooth transition. ZWL balances will be converted at a rate of ZiG1 to ZWL2 498.7242, and ZWL notes and coins will remain usable for a temporary period. New ZiG notes and coins are expected to start circulating by April 30.

Former Information Minister, Jonathan Moyo, emphasises the importance of resisting “quantitative easing”, a policy that injects additional money into the economy, and instead prioritising strict adherence to the new policies. He argues that such discipline is essential to rebuild public confidence, which has been eroded by years of economic instability.

Moyo goes on to criticise the 2009 decision to dollarise the Zimbabwean economy, calling it a “cardinal sin” that has had lasting negative consequences. He contrasts Zimbabwe’s approach with Zambia and Mozambique, who maintained their national currencies during periods of economic hardship.

Moyo expresses optimism that the new MPS has the potential to break Zimbabwe’s 15-year “currency jinx” but stresses the crucial role of resolute implementation. He urges the government to maintain its commitment to the new policies and pave the way for a successful economic recovery.

Despite the RBZ’s efforts, public confidence remains a major hurdle. Mlondolozi Ndlovu, a political commentator, highlights the importance of transparency and public trust in the success of any new currency.

“The initiative by the government goes against the concept of transparency as well as the right to be informed,” Ndlovu said. “The initiative is being imposed on the citizens. The government issued no notice of its intention to ‘launch’ a new structured currency.”

This lack of transparency has fuelled skepticism among the public, with many fearing a repeat of past currency failures.

Former leader of the opposition Citizens Coalition for Change, Nelson Chamisa argues that political reforms are a prerequisite for economic stability.

“A currency is a bundle of trust and confidence. A currency is not a currency without confidence and value.

“Money represents a collective trust in the stability and reliability of the government. Its value is derived from the amalgamation of this confidence,” Chamisa said.

However,former minister Moyo commended RBZ for its “bold, robust and positive” new Monetary Policy Statement unveiled by Governor John Mushayavanhu. Moyo, a prominent political figure, believes the new gold-backed currency, the ZiG, represents the best chance for Zimbabwe to escape its current economic woes.

Moyo, however, warns that the success of the ZiG hinges on the government’s unwavering commitment to two key policy decisions outlined in the MPS. These decisions are:

Replacing the foreign exchange auction system with a refined interbank market based on a willing-buyer-willing-seller model.

Ensuring the ZiG remains fully backed by a basket of foreign currency and precious metals, primarily gold, received by the RBZ.

The Zimbabwe Stock Exchange has already begun adjusting to the new currency, with all share prices and settlements denominated in ZiG. The ZSE indices have also been rebased to reflect the new currency.

While the introduction of the ZiG represents a significant shift for Zimbabwe’s financial system, its long-term success hinges on addressing concerns about transparency, public trust, and sustainable economic policies.