Zimbabwe’s central bank has introduced a new currency called ZiG, short for Zimbabwe Gold, in an effort to address the country’s soaring inflation and stabilize its struggling economy. This new currency will replace the depreciating Zimbabwean dollar, which has experienced a significant decline in value over the past year.
The Reserve Bank governor, John Mushayavanhu, announced the launch of ZiG, stating that banks will convert current Zimbabwe dollar balances into the new currency. Additionally, there will be a considerable reduction in the bank’s main interest rate, dropping from 130 percent to 20 percent.
ZiG will be fully supported by a basket of reserves, including foreign currency and precious metals, primarily gold. This move aims to bring simplicity, certainty, and predictability to Zimbabwe’s financial system. New banknotes, ranging from 1 to 200 ZiG, have been introduced to facilitate transactions.
The Zimbabwean dollar’s value has plummeted against the US dollar, contributing to the country’s high inflation rate, which reached 55 percent in March. This economic instability has exacerbated the challenges faced by Zimbabwe’s population, including widespread poverty, high unemployment, and droughts induced by weather patterns.
Zimbabweans have 21 days to convert their old cash into the new ZiG currency. The new banknotes feature images of gold ingots being minted and Zimbabwe’s iconic Balancing Rocks.
While Zimbabwe boasts substantial gold reserves, questions have been raised about whether these reserves are sufficient to adequately back the currency. Some analysts have expressed concerns about potential volatility in gold prices affecting the currency’s stability.
President Emmerson Mnangagwa recently inspected the central bank’s vaults, which reportedly hold 1.1 tonnes of gold domestically and nearly 1.5 tonnes abroad. The bank also holds $100 million in cash and other precious minerals, which could be converted into gold.
Despite assurances from the central bank, economists like Prosper Chitambara believe that more reserves are necessary to instill confidence and protect the currency from shocks. The central bank plans to implement a tight monetary policy, linking money supply growth to increases in gold and foreign exchange reserves.
Zimbabwe’s history of hyperinflation, exemplified by the issuance of a 100-trillion-dollar note in 2008, underscores the importance of stabilizing the currency. The government’s previous attempts to introduce gold coins and a gold-backed digital currency have had limited success.
