Zimbabwe’s gold-backed currency loses half its value: Why and what’s next?

Less
than
six
months
after
Zimbabwe
launched
yet
another
new
currency,
it
was
forced
to
devalue
it,
signalling
new
challenges
for
the
Southern
African
country’s
efforts
to
stand
up
a
local
currency
and
reduce
dependency
on
the
United
States
dollar.

In
April,
Zimbabwe’s
central
bank
launched
the ZiG,
or
Zimbabwe
Gold,
which
was
hyped
as
a
stabiliser
amid
the
country’s
long-running
currency
and
economic
crisis.

But
in
late
September,
authorities
slashed
the
value
of
the
new
gold-backed
currency
by
more
than
40
percent.

The
ZiG
is
only
one
of
several
attempts
Zimbabwean
authorities
have
made
to
introduce
a
new
currency
since
2009
when
surging
hyperinflation
caused
a
spectacular
crash
of
the
Zimbabwe
dollar,
or
the
Zimdollar.

The
effects
of
the
inflation
crisis
are
still
glaring
with
Zimbabwe
battling
high
inflation
worsened
by
a
severe
drought
in
the
region.

What
happened?

On
September
27,
the
Reserve
Bank
of
Zimbabwe
(RBZ)
slashed
the
value
of
the
ZiG
by
43
percent,
taking
it
from
13.56
ZiG
to
the
US
dollar
at
its
launch
to
24.4
ZiG
to
the
dollar.
The
currency
has
further
weakened
to
27
ZiG
this
week.

The
bank
was
forced
to
make
the
move
after
widening
gaps
emerged
between
the
official
and
unofficial
exchange
rates
of
the
ZiG
as
the
currency
was
going
for
about
twice
the
approved
rate
on
the
black
market.

Despite
the
devaluation,
there
are
still
huge
gaps
between
official
and
parallel
rates:
By
October
23,
the
ZiG
was
pegged
at
40
to
50
to
the
dollar
on
the
black
market,
according
to
the
price
monitoring
website
Zim
Price
Check.

Local
businesses
and
retailers
forced
to
trade
with
the
ZiG
at
the
official
rate
had
reportedly
warned
authorities
that
they
would
close
their
stores
if
the
rate
differences
are
not
tackled,
according
to
reporting
by
the
BBC.

In
an
interview
with
the
Zimbabwe
Broadcasting
Corporation
this
month,
RBZ
Governor
John
Mushayavanhu
said
the
move
“was
not
a
devaluation
but
a
manifestation
of
what
was
already
happening
on
the
market”,
referring
to
the
depreciation
of
the
ZiG
in
the
months
since
its
launch.

He
also
said
it
was
not
expected
to
happen
again
although
he
said
inflation
would
rise
slightly
by
the
end
of
the
year.

“I’d
say
that
the
impact
…
has
been
felt,
but
there
should
be
stabilisation
going
forward.
In
fact,
we
should
see
prices
starting
to
fall,”
he
added.

Why
and
when
was
the
ZiG
introduced?

The
RBZ
launched
the
ZiG
on
April
5
to
replace
the
Zimdollar
and
tackle
skyrocketing
inflation.

The
now-scrapped
Zimdollar
had
become
one
of
the
world’s
worst
performing
currencies
after
it
lost
nearly
all
its
value
because
of
depreciation.
By
the
time
of
its
death,
the
currency
was
exchanged
for
about
30,000
to
40,000
Zimdollars
to
1
US
dollar.

Many small
businesses
had
already
stopped
accepting
the
local
currency
with
most
people
opting
instead
for
the
US
dollar,
which
has
been
legal
tender
since
hyperinflation
hit
the
country
from
2007
to
2009.

Mismanagement,
corruption
and
sanctions
by
the
US
and
the
International
Monetary
Fund
(IMF)
had
caused
Zimbabwe’s
economy
to
flail
under
longtime
former
President
Robert
Mugabe.
The
RBZ
then
resorted
to
printing
money
to
ease
the
situation,
flooding
the
economy
with
currency
that
had
no
real
worth.

The
hyperinflation
that
followed
saw
people
lose
all
their
savings
and
pensions
as
prices
of
food
and
other
necessities
skyrocketed
with
a
loaf
of bread
costing
500
million
Zimdollars.
The
general
inflation
rate
was
about
79
billion
percent.

At
one
point,
the
RBZ
issued
a
100
trillion
Zimdollar
banknote.

In
2009
at
the
height
of
the
crisis,
the
government
was
forced
to
temporarily
scrap
the
local
currency
and
allow
the
US
dollar,
which
was
already
on
the
black
market,
to
be
used
legally.

In
2019,
the
local
currency
was
introduced
but
three-digit
inflation
has
persisted.
A
digital
gold-backed
currency
was
also introduced
in
May
2023
to
a
lukewarm
reception
by
businesses.

Zimbabwean
authorities
have
struggled
to
wean
the
population
off
the
US
greenback
as
it
has
become
the
most
reliable
currency
for
people
to
secure
their
savings.

By
April,
about
85
percent
of
the
country’s
transactions
were
conducted
in
US
dollars,
Mushayavanhu
told
reporters
in
Harare
during
the
ZiG
launch.

Is
the
ZiG
better
than
the
Zimdollar?

The
effects
of
the
new
currency
are
mixed
for
now,
and
some
said
it
is
too
soon
to
assess
the
ZiG’s
performance.

The
currency
is
anchored
on
a
mix
of
foreign
currencies,
gold,
diamonds
and
other
precious
stones
in
Zimbabwe’s
reserves.
Mushayavanhu
said
in
April
that
Zimbabwe
had
1.1
tonnes
of
gold
worth
US$175m
as
well
as
foreign
currency
reserves
of
US$100m.

Zimbabwe
boasts
vast gold
deposits with
the
precious
metal
accounting
for
almost
25
percent
of
all
exports
in
January,
according
to
official
data.
However,
the
country’s
16
million
people
continue
to
experience
hardships
in
an
economy
long
battered
by
high
inflation,
and
many
rely
on
aid.

The
ZiG
comes
in
eight
denominations,
including
coins,
with
the
highest
being
the
200
ZiG
note.
The
notes
feature
a
drawing
of
gold
blocks
being
minted
and
Zimbabwe’s
Balancing
Rocks,
which
were
also
on
the
Zimdollar
notes.

Many
Zimbabweans,
though,
do
not
appear
to
trust
it.

“The
ZiG
has
been
getting
weaker,
so
it
does
not
make
business
sense
to
transact
with
it,”
Maynard
Maketo,
a
street
hawker
selling
candy
and
phone
recharge
cards,
told
the
Reuters
news
agency
in
September.
“I
do
not
have
faith
in
the
ZiG.
We
have
been
here
before
with
the
Zimdollar.”

However,
OK
Limited
bank
reported
a
drop
in
foreign
currency
sales
in
July
in
favour
of
the
ZiG
although
the
bank
did
not
give
the
real
value
of
the
drop.

Zimbabwean
media
also
noted
that
the
use
of
US
dollars
for
transactions
has
dropped
from
85
percent
to
about
70
percent.
Officials
said
they
expect
more
people
to
gradually
accept
the
currency.

But
some
don’t
have
faith
in
a
currency
that
has
come
under
pressure
in
less
than
six
months
and
lost
nearly
half
its
value
despite
government
intervention.
Authorities
arrested
black
market foreign
exchange
dealers in
April,
accusing
them
of
distorting
exchange
rates.

As
the
ZiG
continues
to
slide
rapidly
on
the
unofficial
market,
some
people
–
scared
of
a
repeat
of
2009
–
are
increasingly
exchanging
the
currency
for
the
US
dollar,
pressuring
the
local
currency
even
more.
Some
businesses
do
not
accept
the
ZiG.

Some
experts
blamed
the
government’s
decision
to
retain
a
multicurrency
system
for
the
currency’s
depreciation
although
authorities
said
the
plan
is
to
use
only
the
ZiG
by
2026,
moving
up
from
a
previous
2030
deadline.

Others
said
rushing
to
make
the
system
a
monocurrency
one
could
cause
confusion
and
further
hardships
as
they
advised
authorities
to
take
their
time
and
stabilise
the
local
currency
first.

What
next
for
the
ZiG?

The
ZiG’s
fate
is
unclear
as
even
some
parts
of
the
government
appear
to
have
lost
confidence
in
it.

Although
government
agencies
were
ordered
to
pay
pensions
and
salaries
in
both
ZiG
and
the
US
dollar,
the
Grain
Marketing
Board
in
September
paid
wheat
farmers
entirely
in
US
dollars
for
this
year’s
crop.

Civil
servants
will
also
get
pay
raises
and
annual
bonuses
in
US
dollars
this
year,
authorities
said.

Some
experts
said
the
devaluation
was
not
necessarily
a
poor
move
but
the
government’s
task
now
is
to
use
the
currency
frequently
enough
that
businesses
and
individuals
start
to
have
confidence
in
it
–
for
example,
by
charging
more
taxes
in
ZiG.

“I
don’t
think
we
are
seeing
the
death
of
the
currency,
but
we
have
our
work
cut
out
for
us,”
Lawrence
Nyazema,
president
of
the
Bankers
Association
of
Zimbabwe
told
Reuters.
“We
have
to
do
more
work
in
terms
of
convincing
the
citizens
that
the
money
is
stable.
We
needed
to
reset,
and
now
that
we
have
reset,
we
need
to
stick
to
our
promises.”