Zimbabwe’s New Gold-Backed Currency is Blighted by Trust Issues
ZiG: Zimbabwe’s New Gold-Backed Currency Blighted by Trust Issues
Story by Jeffrey Gogo, Cryptopolitan
ZiG, the new gold-backed currency the Reserve Bank of Zimbabwe (RBZ) unveiled in April to contain high inflation, has been dogged by trust issues. Economists say that fixing broken trust, and not a new currency, will stabilize the economy.
The Southern African country has attempted to introduce a new currency six times in the past 15 years to replace the Zimbabwean dollar. Each attempt has failed, resulting in huge losses in savings for people.
What Is the ZiG?
In 2009, the Zimbabwe government legalized the use of several foreign currencies, including the U.S. dollar and the British pound, in everyday trade. The administration made the decision in an attempt to tame monthly inflation of 79.6 billion percent at the time.
Since then, however, Zimbabweans have been caught in a vicious cycle where a surrogate local currency is used to sponge away their U.S. dollar deposits before being decommissioned for a new currency.
Announcing the ZiG, short for Zimbabwe Gold, on Apr. 6, Reserve Bank of Zimbabwe governor John Mushayavanhu said:
“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.”
Remarkably, the new central bank governor’s tenure kicks off the ZiG era. His predecessor, John Mangundya, came with ‘bond notes’, pegged one-to-one with the U.S. dollar at the time, to ease cash shortages in 2016.
Mushayavanhu, who only became central bank governor on Mar. 28, 2024, revealed the ZiG is backed by $575 million in gold, foreign currency reserves, and other minerals. The new currency derives its name from a central bank-issued, gold-backed digital token now known as GBDT.
Video: https://twitter.com/i/status/1779472778174865782
Mushayavanhu says he introduced ZiG as a measure to contain inflation, which hit a seven-month high of 55% in March, according to official data. Its predecessor, the Zimbabwean dollar, lost 80% of its value since it was reintroduced in 2019. Eventually, the RBZ ditched the local unit.
Central Bank Wants to Rebuild Trust
Some experts believe Harare understates its inflation data. Steve Hanke is a professor of economics at Johns Hopkins University in the U.S. He has tracked the Zimbabwean situation for years. On Friday, Hanke measured the country’s annual inflation rate at 1,191%, making it the world’s highest.
Mushayavanhu said the Zimbabwe Gold currency will co-circulate with other foreign currencies that remain legal tender until 2030. According to the RBZ, the U.S. dollar dominates, accounting for more than 85% of transactions in Zimbabwe.
The central bank governor hopes that ZiG will help stem inflation and improve savings. He wants to allay the ghosts of 2008 when many lost their life savings. This refers to when the infamous 100-trillion-dollar notes of the local currency at the time, bearer’s cheques, were pronounced worthless.
Mushayavanhu is also keen to build trust and confidence around recently issued currency while avoiding a repeat of the 2019 chaos.
Then, the government unpaired the locally issued surrogate from the U.S. dollar into a standalone currency called the ‘Zimbabwean dollar or RTGS.’ All savings and debts before the fact were converted to the Zimbabwean dollar, which quickly lost value. ZiG will now replace the abandoned Zimbabwean dollar.
The new Zimbabwe Gold money was greeted by an explosion of memes even before it hit the streets on Apr. 31, from the congratulatory to the skeptical and the downright cynical.
The Transition to ZiG Has Been Chaotic
Several cartoons personified the currency as Ziggy Marley, the reggae heir whose name sounds like “ZiG Imali” (ZiG money). A local artist, Ras Caleb, made good on the wordplay with a PR song and got himself a car and $2,000 from a millionaire patron of the ruling Zanu PF party.
Former opposition MP Fadzayi Mahere discredited the new currency as the government’s latest unsustainable fix for runaway inflation, with a widely shared ZiG poem (see above) that stated, “The problems are big/But we always rig.”
In the Apr. 5 statement, Mushayavanhu said banks would accept deposits in the outgoing Zimbabwean dollar at a certain exchange rate for one ZiG. Businesses and individuals had 21 days to make deposits.
The transition was chaotic. Transport operators, retailers, and other traders rejected the old currency, making the U.S. dollar unofficially the only accepted currency for that period.
For a time, few downtown vendors accepted the older currency at more than double its value, taking advantage of an unbanked population that would otherwise be stuck with prematurely decommissioned dollars.
Now, dozens of illegal street forex dealers have been arrested, as the government jostles to contain the parallel market, whose rates traditionally dictate real-time transactions.
Whereas the official rate is just over ZiG13 for US$1, the greenback is going for up to ZiG17 on the parallel market. The Reserve Bank of Zimbabwe has frozen some businesses’ bank accounts for refusing to accept ZiG as payment or accepting it at their own exchange rates.
ZiG ‘Command Economics’ Under the Spotlight
Mahere, the former member of Parliament (MP), has questioned the selective punishments and queried why fuel stations, state universities, and the passport office are exempt from punishment for not accepting ZiG.
The government’s acquisitive reputation is not entirely in check in the ZiG era. With the launch of ZiG, Mushayavanhu directed that company funds held by the central bank towards a forex auction system be converted into a two-year ZiG-denominated bond at 7.5% interest per year.
A quarter of the foreign exchange companies earn from exports is surrendered to the Reserve Bank at a commission. The RBZ governor also demanded that outstanding payments owed to companies under this scheme be turned into one-year ZiG-denominated investments.
Economist Gift Mugano criticized the central bank directive, describing it as what he called “command economics.”
“This is a direct violation of property rights which is synonymous with appropriation of business monies,” Mugano wrote in a thread on X. “It raises despondency and worsens the trust and confidence levels which are required to foster the acceptability of the ZiG.”
Cryptopolitan Reporting by Jeffrey Gogo
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