Zimbabwe's new ZiG currency trading amid chaotic start, gains 0.2% against USD on day 2

By bne IntelliNews April 10, 2024

Zimbabwe's new mainly gold-backed currency officially started trading on April 8, three days after it was introduced in a bid to tackle skyrocketing inflation. Many shops refused to accept the new Zimbabwe Gold (ZiG) as payment, demanding US dollars instead, while the old national banknotes have become worthless. 

While nearly all major retailers and banks were still configuring their systems to be able to handle the ZiG, the Zimbabwe Stock Exchange and the country's biggest mobile money company, EcoCash, said transactions on their platforms could be conducted using the new unit with effect from April 8.

Zimswitch, a national payment platform, also announced on that day that ZiG had gone live, Xinhua reported on April 9.

The southern African nation unveiled the ZiG amid a steep depreciation of the former currency, the Zimbabwean dollar. Bloomberg estimates that the old currency had lost 75% of its value against the greenback since January 2024.

Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu noted that the new structured currency will be backed by a basket of foreign exchange reserves and precious metals, mainly gold, being held by the central bank.  The total reserves, he added, are valued at about $285mn.

The switch from the Zimbabwe dollar (ZWD), however, disrupted economic activity as most businesses suspended transactions in the local currency while accepting foreign currencies among them the greenback and the South African rand (ZAR).

The Bankers Association of Zimbabwe said all banks were in the afternoon on April 9 still “diligently” working on the conversion to the ZiG.

“The sector is very optimistic about the new structured currency that links the local currency to a composite basket of reserve assets comprising precious minerals (mainly gold) and foreign currency balances which aims to address the current state of price and exchange rate instability in the economy,” it said in a notice.

The ZiG strengthened 0.2% to 13.53 per $1 a day after its debut, the central bank said, per The South African on April 9  That made it stronger than the Rand which was trading at ZAR18.47/$ at 16:30 on that day.

While the new currency has started trading on a stronger footing, Reuters, citing analysts, warned that credibility fears are still lingering over the country's sixth bid in 16 years to come up with a stable medium of exchange.

“There was dire need for drastic change in the Zimbabwean monetary system,” Jacques Nel at research firm Oxford Economics said in a note to clients.

The central bank statement on Friday correctly identified the most pressing problems, said Nel. “A lack of credibility in both the domestic currency and the framework that governed it — but it is that same lack of credibility that casts doubt over the effectiveness of these new measures,” he added.

Bloomberg was also pessimistic about ZiG.  

"Extreme caution is recommended with this kind of project, however," argued its columnist Lionel Laurent on April 9.

"Start with the principle: The appeal of backing a currency’s exchange rate with gold — in this case, 13.56 ZiGs to the US dollar — is rooted in the nostalgic, if not mythical, view of the gold standard of the 19th and 20th centuries as a mechanism that kept money 'sound' and inflation low."

Related Articles

Russia to establish embassies in Sierra Leone, Niger and South Sudan

Russia is taking significant steps to bolster its diplomatic footprint in Africa, with plans underway to establish full-fledged diplomatic missions in Sierra Leone, Niger, and South Sudan.  ... more

Biden: Kenya in line to be first sub-Saharan non-NATO ally

Kenya could join a list of US allies that are not members of NATO, President Joe Biden said, following a meeting in the Oval Office with his Kenyan counterpart William Ruto on May 23 – amid the ... more

TotalEnergies launches Kaminho deepwater project in Kwanza Basin offshore Angola

Energy major TotalEnergies (France) and its partners in Block 20/11 have announced a final investment decision (FID) for the Kaminho project to develop the Cameia and Golfinho fields offshore Angola. ... more