Zimbabwe has introduced a new gold-backed currency, the Zimbabwe Gold (ZiG), amidst skepticism over its ability to stabilize the nation's troubled economy.
Zimbabwe has introduced a new currency, the Zimbabwe Gold (ZiG), in an attempt to stabilize its failing economy. The currency, which debuted on April 8, has been met with skepticism by citizens and financial experts alike, with the streets of Harare dubbing it "fool’s gold."
Ed Stoddard, a prominent financial writer in Southern Africa, criticized the move, stating that "Zimbabwe is a mafia state characterized by rampant inflation," and that the government's adoption of a pseudo-gold standard is fitting given its history of economic mismanagement. He expressed doubts about the potential success of the ZiG, echoing sentiments from the local population.
The Zimbabwe Crisis Coalition (ZCC) Chairman, Peter Mutasa, has also highlighted the lack of trust in the new currency, noting that a significant portion of business in Zimbabwe is transacted in U.S. dollars.
The country's economy took a severe downturn in the early 2000s following land seizures from white farmers by then-President Robert Mugabe. This led to a collapse in agriculture, food shortages, and hyperinflation that continues to affect Zimbabwe.
Zimbabwe abandoned its original currency, the Zimbabwe dollar (ZD), in 2009 after hyperinflation rendered it worthless. Although the ZD was reintroduced in 2019, it quickly lost value, prompting the government to launch the ZiG, which is currently trading at around 13.5 to the U.S. dollar.
Despite the initial positive outlook from Johannesburg-based economist Ulrich Joubert, he remains skeptical about the longevity of the currency. He predicted that the government would resume printing money to fund its budget, further diminishing trust in the ZiG.
The Reserve Bank of Zimbabwe Governor, John Mushayavanhu, has admitted that hesitancy around the new currency is to be expected but remains optimistic that it will eventually succeed, emphasizing its backing by gold—a highly trusted commodity.
Supporters of the currency argue that it is backed by a basket of cash and gold reserves, with the governor claiming the reserves were worth $185 million last week. However, critics like Michael Samson, director of the Economic Policy Research Institute of Southern Africa, question the government's commitment to maintaining a stable currency without resorting to inflationary measures.
The response from the banking sector has been cautious, with a limited number of banks currently processing ZiG transactions. The Zimbabwe Stock Exchange is also experiencing limited trading activity as market participants adopt a wait-and-see approach.
Inflation continues to be a major concern, with the World Bank reporting a seven-month high of 55 percent in March. The widespread skepticism towards the ZiG is further fueled by the government's insistence on the U.S. dollar remaining legal tender, a currency from a country it publicly criticizes.
Allegations of gold smuggling and laundering by the ZANU-PF government, which include high-ranking officials in South Africa, have been reported by Al Jazeera. The government has dismissed these claims as unsubstantiated.
Zimbabweans have until April 29 to exchange old notes for the ZiG, and companies will be required to pay at least half of their taxes in the new currency to boost its demand.
