In a bold move to stabilize the Zimbabwean economy, Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu has taken a definitive stance against the central bank’s involvement in quasi-fiscal operations. His statement came as he introduced a significant change to the nation’s currency system — the launch of the Zimbabwe Gold (ZiG). This new structured currency aims to replace the beleaguered Zimbabwe dollar, which has been plagued by instability and loss of value over the years.
The Zimbabwe dollar’s journey has been fraught with challenges, including a devastating recession triggered by quasi-fiscal activities that undermined its value. After being abandoned in 2009, it saw a partial reintroduction in 2019 before fully returning later that year. However, its instability has continued to impact the economy negatively.
In his address during the presentation of the delayed 2024 Monetary Policy Statement, Governor Mushayavanhu underscored his commitment to restoring economic equilibrium, emphasizing his dedication to the clear mandate provided by the RBZ Act. “I do not believe in quasi-fiscal activities. It is not going to happen under my watch,” he declared, signaling a new era of fiscal responsibility.
The transition to the ZiG currency, set to co-circulate with other foreign currencies, marks a pivotal step towards enhancing monetary and financial stability in Zimbabwe. Starting April 5, 2024, banks will begin converting existing Zimbabwe dollar balances into ZiG, with the conversion rate influenced by the interbank exchange rate and the price of gold. This move is designed to introduce simplicity, certainty, and predictability into Zimbabwe’s monetary system.
Significant provisions have been made for the smooth transition to ZiG, including the establishment of a portal for customers to verify their current bands and the direction for banks to refund any customers overbilled due to the conversion process. Additionally, ZiG notes and coins will be introduced in various denominations, further facilitating the transition.
Backing the new currency, the RBZ has earmarked US$285 million in reserve funds, comprising gold and foreign currency assets, to support the ZiG’s value. This structured approach aims to ensure that the issuance of domestic notes and coins is fully backed by foreign reserve currencies or assets, enhancing the currency’s convertibility and stability.
As Zimbabwe embarks on this ambitious monetary reform, the success of the ZiG currency will depend on several factors, including adherence to government borrowing limits from the central bank and market-driven foreign exchange rate determination. Economist Prosper Chitambara and other experts have weighed in on the potential impact of these reforms, highlighting the importance of market dynamics and government discipline in fostering confidence in the new system.
With the RBZ’s introduction of a market-determined foreign exchange management system and adjustments to the bank policy rate, the central bank aims to lower the cost of borrowing and stimulate economic productivity. However, the effectiveness of these measures in achieving sustained stability and growth remains to be seen, as the nation watches closely to see if this bold strategy can steer Zimbabwe toward a more prosperous future.
