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O n 30 April, the Zimbabwe Gold (ZiG) –  Zimbabwe’s new currency – began circulating. Earlier that month, Reserve Bank Govenor John Mushayavanhu issued the Monetary Policy Statement (MPS) and Statutory Instrument 60 of 2024 that declared that the ZiG would replace the Real Time Gross Settlement (RTGS) on 30 April after a 21-day transition period.

The country ’s new “structured currency” is backed by USD 285 million worth of assets including gold and precious metals. Mushayavanhu made the announcement days after taking office. He took office a month earlier than expected and did so against the backdrop of a 75% depreciation in the currency since the start of the year and year-on-year inflation sitting at 55% – the highest in the world.

Companies, local governments and individuals have been grappling with the currency change and associated uncertainty throughout April. When the ZiG was unveiled, it was official pegged at 1:13 to the US Dollar; within days the unofficial exchange rate was sitting at 1:17.

Image source: Xinhua.

Zig zagging

The introduction of the ZiG marks the fifth time that Zimbabwe has introduced a new currency since attaining independence in 1980. Rampant inflation throughout the 2000s forced the government to redenominate the rapidly depreciating currency three times – 2006, 2008 and 2009. A brief period of dollarisation between 2009 and 2016 under a government of national unity brought some relief, stability and predictability to consumers and businesses. 

The RTGS was introduced in 2019 after a period of multi-currency use. It was initially well-received but the collective trauma through the citizenry caused by losing their life savings thrice before and a lack of political change at the polls in 2023 triggered a rapid depreciation. The RTGS was in the doldrums by the end of 2023, and it was time for the central bank to decisively intervene, yet again.

Image source: Smithsonian.

Zimbabweans lack confidence in the local currency, which is spurred by a lack of faith in the government; the social contract has been frayed beyond recognition. In the absence of a genuine, long-term, multi-party effort to restore public confidence in state institutions, the US dollar will continue to account for over 80% of all transactions and be stored under bedroom mattresses and safes instead of the formal banking system. 

Fiscal and monetary discipline; sovereign debt restructuring; granting the Reserve Bank greater independence; liberalising the exchange rate; and accepting that a period of dollarisation is necessary for at least two electoral cycles is needed. It’s the tougher path but one that is needed to put the country on a more sustainable path. Instead, alternative path has been chosen.

In gold we trust

The ZiG is actually the government’s third foray into a gold backed currency. The first muted attempt occurred in July 2022 when the central bank issued gold coins valued at USD 1,800 each to dampen local demand for US dollars. These coins were created as a store of value to undercut the parallel market. The second effort took place in October 2023 when the central bank launched ZiG tokens – a gold-backed digital currency aimed at facilitating peer-to-peer and peer-to-business transactions. Individuals and businesses would buy the tokens and use an e-gold wallet or e-gold card held by banks to make transactions. The tokens could be traded after a 180-day vesting period and any physical gold coins could be exchanged for digital gold coins.

Image source: TechCabal.

Uptake for the gold-backed digital currency was slow. A lacklustre awareness raising campaign and a loss of public confidence in the banking system contributed to muted demand. This token issuance was valued at USD 12 million, and official records indicate that the central bank received 135 applications for the digital currency upon its launch. The majority – 132 – were seeking to convert their local currency to US dollars. The number of applicants fell by nearly 75% during the next issuance in July 2023 – a far cry from success.

Gold details

The public’s continued lack of confidence in public institutions was once again highlighted a few days before the new currency’s launch. Mushayavanhu publicly asserted that one of the things he had to do was to “verify the assets that the central bank holds” and he confirmed that the central bank holds 1.1 tonnes of gold. 

During this address, Mushayavanhu also stated that he had personally assured President Emmerson Mnanagwa that the gold was in the vault; an additional 1.5 additional tonnes of gold and other foreign currency reserves is purported to be held offshore.

Image source: Nehanda Radio.

Al Jazeera’s 2023  Gold Mafia investigative documentary highlighted the impunity of politically connected individuals operating in the gold sector and implicated several senior officials including the president in illegal activities via secret recordings. Those implicated have issued strongly word statements that criticise Al Jazeera’s tactics and refute the allegations implied as a result of the documentary series. 

Perceptions of the extraction, exploitation and export of Zimbabwe’s gold will be strongly linked to this highly critical documentary series for the foreseeable future. Hitching the fate of a new currency to this high visibility metal is bold. If history proves anything, it’s that the central bank and the government are willing to make big bets. The question remains, however, if they can make the best of a losing hand.