Zimbabwe introduces new currency linked to FX, gold

Dr. John Mushayavanhu
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HARARE,-Reserve Bank of Zimbabwe governor John Mushayavanhu has issued his maiden monetary policy statement, bringing with him a new gold-backed currency and promises to end the money-printing that tanked the Zimdollar.

In his speech, Mushayavanhu talked tough, saying quasi-fiscal activities “were in the past”. Repeatedly, Mushayavanhu said “not under my watch” would the mistakes of the past happen. He added: “I am not here to do other people’s jobs. I’m here to do my own.”

Cutting through all the jargon, the new man at RBZ has simply used a roundabout way to do what a predecessor did before – dropping some zeroes from the inflation-hit Zimbabwe dollar.

Here, we piece together some of the highlights from his speech today.

The currency

Mushayavanhu says the Zimdollar has been weakened by a lack of confidence and uncertainty. His solution is what he calls a “market-determined foreign exchange management system which links the local currency to a composite basket of reserve assets comprised of precious minerals (mainly gold) and foreign currency balances”.

In short, a currency backed by gold and forex. The ZiG is in denominations of up to 200, and even has half-ZiG and a quarter on the way.

At what rate?

The new currency’s exchange rate has been determined by dividing the official rate with today’s gold price. At today’s rates, that means the ZiG is about 13.6 to the USD.

So, if you were strutting about with Z$1 million in your account, it is now about 445 ZiG. Effectively, RBZ has lopped off some zeroes from the currency.

RBZ says all Zimdollar prices in the shops must now be converted to the new ZiG. Mobile operators, such as money transfer services, have until Monday to shift their platforms to the new ZiG. All Zimdollar balances will now be converted to this new currency.

Backed by what?

As of 5 April 2024, RBZ has reserve assets of US$100 million in cash and 2,522 kgs of gold (US$185 million). The governor says this is enough “to back the entire local currency component of reserve money which currently stands at ZW$2.6 trillion requiring full cover of gold and cash reserves amounting to US$90 million.”

He says the gold and cash reserve holdings is more than three times cover for the local currency being issued.

Printing money?

Mushayavanhu says he will only print money that is fully backed by forex reserves or assets, and that he will make sure that the currency is fully convertible into the reserve currency on demand.

Bank charges

If you have very little money in the bank, at least there’s some good news for you. Your bank won’t charge fees if you usually have less than US$100 in your account.

“Banks will not charge monthly bank maintenance or service charges for individual bank accounts with a conservative daily balance of US$100 and below or its equivalent in ZiG for a period of up to 30 days.”

Interest rates

Mushayavanhu has cut the interest rate from 130% to 20%, saying this reflects his new currency policy.

What about USD

The USD remains legal tender. The multicurrency system will stay until at least 2030.

The auction is gone

Mushayavanhu officially put the forex auction to bed. “The auction system has been replaced by a refined interbank foreign exchange market under a willing-buyer-willing-seller (WBWS) trading arrangement. Following this development, a transparent price discovery mechanism is now in place in the interbank market. The Bank will continue to provide trading liquidity to the market using the 25% surrender proceeds from exports.

How will he support demand for ZiG

“In order to foster demand for the local currency, Government will make it mandatory for companies to settle at least 50% of their tax obligations on Quarterly Payments Dates (QPDs) in ZiG.”

Source: NewzWire