Zimbabwean businesses are still in the process of adapting to the country’s latest currency shift, a week after the central bank introduced the sixth currency change in 16 years.
On April 5th, Zimbabwe unveiled the Zimbabwe Gold (ZiG) currency, backed by 2.5 tonnes of gold and foreign currency reserves valued at around $285 million.
The transition to ZiG has not been immediate.
Following the announcement by Reserve Bank of Zimbabwe Governor John Mushayavanhu, local currency transactions were halted by banks, mobile money operators, and retailers. While electronic ZiG transactions commenced on April 8th, physical notes and coins won’t be in circulation until April 30th, leaving holders of the previous currency, the Zimbabwe dollar (ZWL), in limbo.
Currency traders in major cities like Bulawayo remain inactive, and platforms like Zimpricecheck.com did not display a parallel market rate on April 9th.
Eddie Cross, a former member of the RBZ monetary policy committee, emphasized the challenges beyond just introducing a new currency, stressing the importance of managing and supporting it effectively.
The new currency, pegged to a composite basket of reserve assets including gold and foreign currency balances, aims to address the instability in prices and exchange rates in the economy.
History of currency woes
Zimbabwe’s currency woes date back to 2008 when hyperinflation reached staggering levels, leading to the abandonment of the ZWL in favor of multiple foreign currencies, mainly the US dollar.
Despite subsequent attempts to stabilize the currency under President Emmerson Mnangagwa’s administration, including the reintroduction of the ZWL in 2019, challenges persist.
Persistence Gwanyanya, an economist and MPC member, expressed confidence in ZiG, citing its demand and the alignment of currency supply with available reserves. He highlighted the significance of the gold reserves backing ZiG.
However, Gift Mugano, a professor of economics, cautioned that creating demand for ZiG is crucial for its sustainability. While acknowledging the importance of asset backing, Mugano stressed the need for government intervention to stimulate demand for the new currency, without which its survival could be jeopardized.
