Zimbabwe has taken a significant step to address its persistent currency challenges by unveiling a new foreign exchange and gold-backed currency, aiming to stabilize its monetary system amid high inflation rates.
Announced in the inaugural monetary policy statement by the new Reserve Bank of Zimbabwe (RBZ) governor, John Mushayavanhu, the introduction of this new currency, known as Zimbabwe Gold (ZiG), marks a strategic move by the central bank.
ZiG is supported by a combination of foreign exchange reserves and precious metals held by the RBZ, aimed at ensuring stability and value in the market.
This initiative represents the latest effort by the RBZ to combat Zimbabwe’s currency woes, following previous attempts such as the introduction of gold-backed digital tokens and bond notes. However, the gold-backed digital token faced criticism upon its initial launch last year.
ZiG Currency Implementation and Impact on Monetary System
According to RBZ governor John Mushayavahu, the ZiG currency will be available in various denominations. He also clarified that the multiple currency regime will persist, allowing ZiG to co-circulate with other foreign currencies.
Local banks will commence the conversion of Zimbabwe dollar balances into ZiG, with guidance from interbank exchange rates and gold prices. Mushayavahu emphasized that the aim of this initiative is to instill confidence in the country’s monetary system and offer a stable alternative for financial transactions.
Additionally, the RBZ has implemented significant measures, including a drastic reduction in the annual interest rate from 130% to 20%, to stimulate investment and economic growth by making borrowing more affordable.
While these measures signal a substantial shift in Zimbabwe’s monetary landscape, the RBZ asserts that the stability of the new currency is underpinned by robust macroeconomic fundamentals and substantial reserve assets, including foreign currency and gold reserves.
Disruptions in the Financial Sector
However, the transition to the new currency has led to disruptions in local dollar transactions across Zimbabwean financial institutions, as reported by Bloomberg.
Processing of local dollar transactions has been temporarily halted until financial institutions adapt to accommodate ZiG. Once this transition is complete, normal banking services are expected to resume.
Several banks, including South Africa’s Nedbank Ltd., have experienced system downtime during the currency transition, requiring reconfiguration to align with the new currency’s framework.
Zabron Chilakalaka, CEO of ZimSwitch, a prominent payments platform provider, characterized the ongoing changes as a “rebasement” of existing balances. While some banks can automate the conversion process, others require vendor support for a seamless transition.
Despite these challenges, transactions denominated in U.S. dollars continue to be processed without disruption. The country’s history of currency reforms, particularly during the hyperinflation period in 2008, underscores the complexity of such transitions.
Zimbabweans have a 21-day window to convert their old cash into the new currency, marking a crucial period in the adoption of ZiG.
