INCOMING Reserve Bank of Zimbabwe governor John Mushayavanhu has undertaken to break with the past after promising to stop running the money printing press and disengage from quasi-fiscal operations as the apex bank seeks to defend the value of the new structured currency.
BERNARD MPOFU
The country on Friday introduced a new gold-backed currency called ZiG — the name stands for “Zimbabwe Gold” — as the authorities battle to stabilise an economy that has lurched from crisis to crisis for more than two decades.
Launching the new notes whose smallest is ZiG1 and largest ZiG200, central bank governor Mushayavanhu said the new unit would be backed by the country’s foreign currency reserves and a basket of precious metals dominated by gold. Gold is the country’s single largest foreign currency earner followed by tobacco.
“We want a solid and stable national currency in this country,” Mushayavanhu told journalists attending the Monetary Policy Statement presentation.
“It does not help to print money. Certainly under my watch it is not going to happen.”
The ZiG replaces a Zimbabwe dollar, the RTGS, that had lost over 70% of its value so far this year. The central bank chief said Zimbabweans have 21 days to exchange old, inflation-ravaged bond notes for the new currency, adding that the greenback which accounts for 85% of transactions will remain legal tender until 2030.
The former FBC Holdings chief executive, christened “John the Second” on social media after succeeding John Mangudya at the Reserve Bank, committed to ensuring that the amount of local currency in circulation was backed by equivalent value in precious minerals — mainly gold — or foreign exchange, in order to prevent the currency losing value like its predecessors.
He said the Reserve Bank will consistently maintain a “comfortable and steady buffer” of foreign reserves to ensure that the new currency is at all times fully covered by reserves.
The new ZiG banknotes, according to Mushayavanhu, come in denominations of between 1 and 200. Coins will also be introduced to overcome the shortage of US coins, which has seen people receive change in sweets, small pieces of chocolate and ballpoint pens.
“ZiG shall at all times be anchored and fully backed by a composite basket of reserves comprising foreign currency and precious metals (mainly gold), received by the Reserve Bank as part of in-kind royalties and kept in the vaults of the Bank. Foreign currency balances will be accumulated through market purchases from the 25% surrender requirements as well as sale of some precious metals received as royalties,” the central bank chief said.
“Once the currency and exchange rate have stabilised and the supplementary support measures in this new Monetary Policy Framework have been implemented, inflation expectations should be firmly anchored towards the observed trend of domestic USD inflation, which is expected to be below 1% month-over-month and between 2 and 5% annually.”
But not everyone was convinced that the ZiG will mark the beginning of monetary stability in Zimbabwe.
“This is just a clever way of cutting zeros,” said Gift Mugano, a Harare-based economist and director at the Centre for African Governance Development at Durban University of Technology in South Africa.
Mugano said that for Zimbabwe to have a stable currency, the government first needed to bring its spending in line with what it raises through taxes and other income. Otherwise, he said, Mushayavanhu, like his predecessors, will struggle to resist pressure from the government to turn on the printing presses.
“Every governor would aspire not to print money, would wish not to print money,” Mugano said. “But my observation is that the Treasury, the minister of Finance, is the driver of money supply.”
Zimbabwe has tried a variety of means to stabilise its currency since 2008, when the bank was printing ZW$10 trillion notes as inflation ran out of control.
The country ditched its local currency in 2009 for a basket of currencies mainly dominated by the United States dollar to stem inflation. Plans to bring back the domestic currency have over the years triggered several cycles of currency volatility and spiralling inflation.
