THE World Bank has subtly distanced itself as the driving force behind introduction of Zimbabwe’s new currency.
BERNARD MPOFU
It says it only offers policy advice to several countries, member states like Zimbabwe who have the prerogative or discretion to choose a currency of their choice.
This was in response to Reserve Bank governor John Mushayavanhu’s claims that ZiG was the brainchild of the Bretton Woods institution.
Mushayavanhu claimed that the World Bank was central to the ZiG initiative through consultancy.
Now he is backtracking under pressure saying the World Bank was not the architect of ZiG.
On 5 April, the apex bank introduced the Zimbabwe Gold (ZiG), the country’s new currency which effectively replaced bond notes and the RTGS.
During the introduction of ZiG, Mushayavanhu said the new currency would be backed by foreign currency and gold reserves.
Speaking at a post-monetary policy review breakfast meeting in Bulawayo recently, the central bank chief said monetary authorities had limited knowledge about a structured currency.
“We didn’t know much about a structured currency. We got a consultant from the World Bank. A lot of the things you’re seeing about the structured currency actually came from the World Bank.
“So, if you’re going to blame me, you’re actually blaming the World Bank. Maybe they didn’t advise us properly. And if they did not advise us properly, it’s fine. Let’s refine it.”
Research by The NewsHawks revealed that, there was no literature relating to “structured currency” found on either the World Bank or International Monetary Fund websites suggesting that this could be a novel currency.
A World Bank spokesperson told The NewsHawks that while the multilateral lender offers policy advice to countries such as Zimbabwe, member states remained autonomous on key policy decisions.
“We are committed to supporting the government of Zimbabwe in its efforts towards the country’s economic recovery,” the World Bank said in a written response.
“This aligns with our goal to create a world free of poverty on a livable planet. This support includes technical expertise and in-depth research and analysis on sectors, such as the latest Zimbabwe Economic Update. It also includes perspectives on policy and development challenges at the request of clients. Governments tailor this advice to their contexts and ultimately make the final decisions on policy implementation in their countries.”
The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. Its five institutions — International Bank for Reconstruction and Development, International Development Association, International Financial Corporation, Multilateral Investment Guarantee Agency and International Centre for Settlements of Investment Dispute — share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development.
Contacted to comment on whether or not the IMF had played any role in the introduction of Zimbabwe’s new currency, a spokesperson said the fund was still assessing the impact of the domestic currency on the economy.
Unlike the World Bank, a core responsibility of the IMF is monitoring the economic and financial policies of member countries and providing them with policy advice, an activity known as surveillance. As part of this process, which also takes place at the global and regional levels, the IMF identifies potential risks and recommends appropriate policy adjustments to sustain economic growth and promote financial stability.
In Zimbabwe, the IMF through its periodic Article IV Consultations has over the years been publishing policy advisory notes on the country’s macroeconomic environment. Issues that have been tackled over the years include inflation and currency regime.
“The selection of a particular exchange rate regime is the prerogative of the country authorities, a Washington DC-based IMF communications officer said in a written response to The NewsHawks.
“The IMF’s role is primarily to advise on whether the country’s economic circumstances and its policy stance are consistent with the exchange rate regime that has been selected. In this context, we stand ready to advise the Zimbabwe’s authorities on policies to restore macroeconomic stability, but we need time to review the design and implications of the new currency arrangement.”
Barely a month after the launch of ZiG, some economic analysts however doubted claims by the central bank that it would be backed by bullion reserves.
Imara in its latest research note to investors observed that how the ZiG’s price will be determined after giving legal effect to the new currency was not clear in the MPS (determined by a “refined interbank foreign exchange market”).
Statutory Instrument (SI) 60 of 2024 which gives legal effect to the new currency does give some brief insight into the envisaged ZiG pricing, which sounds complicated.
According to SI 60, on-going ZiG value shall be “determined by the inflation differential between ZiG and the United States dollar inflation rates and the movement in the price of the basket of precious metals (mainly gold) and valuable minerals held as reserves by the Reserve Bank.” The applicable weights will be determined by the composition of reserve assets.
“So the bottom line to all of the above in our view is that the value of the ZiG on any given day will be determined by its supply and demand; it will not be based upon the gold price as it is not convertible into gold from what we can establish,” John Legat, the Imara Asset Management chief executive, wrote in a new research note.
“We also doubt that the refined interbank foreign exchange market will be any different to the one we have had up to now; in short it will likely be a controlled rate engineered by the RBZ rather than one set by the commercial banks. That implies that there will be a black market rate in ZiG just as there was in the ZWL and that will be determined by supply and demand. Too much supply and the rate will devalue irrespective of the value of Zimbabwe’s foreign reserves or the gold price. We stand to be corrected on this as it is still early days as yet but at the moment the ZiG looks to be a redenominated form of the ZWL.
“At the end of the day however, the success or failure of the ZiG will as always boil down to trust. As we wrote on several occasions last year under the theme of ‘Once bitten, twice shy’, the general public and, importantly, foreign investors have close to zero trust in the Zimbabwean economic authorities for obvious reasons. It will therefore be up to the new Governor to work to rebuild that trust by showing that the ZiG performs as the label on its tin suggests it should. If it doesn’t and ZiG is created to fund roads, for example, or civil servants’ salaries, then the ZiG will go the same way as the ZWD and the ZWL, but rather faster.”
