Zimbabwe has introduced the Zimbabwe Gold (ZiG), a new currency backed by gold, to replace its faltering native dollar. The President Emmerson Mnangagwa government is to blame for this action, which signals a significant shift in the country's monetary policy.

With the intention of stabilising its economy and regaining confidence following the depreciation of the Zimbabwe dollar, Zimbabwe introduces the gold-backed ZiG currency.

Zimbabwe Dollar launches the Zimbabwe ZiG

Zimbabwe's ongoing economic hardships served as the impetus for the ZiG's implementation. The previous currency, the Zimbabwe dollar, had lost more than three-quarters of its value in just this year alone, and it was trading at Z$36,000 to the US dollar. As a result, the governor of the Reserve Bank of Zimbabwe, John Mushayavanhu, acknowledged that the devaluation of the previous currency was caused by the large-scale money printing.

The primary objective of the ZiG is to increase the stability of the national currency, which is backed by a combination of gold reserves, other precious minerals, and foreign exchange reserves.

Additionally, the Reserve Bank of Zimbabwe possesses 1.5 tonnes of gold offshore and around one tonne in its vaults. The decision to use physical assets as the new currency's backing has been seen as a means of fostering consistency and confidence in the nation's financial system.

Obstacles and Doubt

But despite these initiatives to move away from the Zimbabwean currency, people and economists remain dubious. Given Zimbabwe's limited foreign exchange reserves and long history of monetary instability, the relevance of the gold backing in guaranteeing the new money is unclear.

“Mattress banking” has been the popular term for many Zimbabweans, who have seen the erosion of their purchasing power and savings, that now prefer to save money at home rather than in banks.

Zimbabwe's foreign exchange reserves pale in contrast to those of other African countries. For instance, Zimbabwe's reserves only cover a month's worth of imports, whereas Kenya's reserves total over $7 billion, providing 3.7 months of import cover. This disparity illustrates the challenges Zimbabwe faces in stabilising its new currency.

Relations with the World and Economic Reforms

Due to unresolved debt and political issues in the nation, President Mnangagwa's attempts to facilitate Zimbabwe's reintegration into international markets and the restoration of support from multilateral lenders have failed. But the United States and other countries have been reluctant to engage with Zimbabwe, particularly in the wake of charges of election manipulation and human rights abuses under Mnangagwa's rule.

The ZiG, running with a band of other currencies, will be launched in eight denominations, bearing representations of gold bars and the famous Balancing Rocks. A 21-day period is given to Zimbabweans during which they can transition their old currency into the new ZiG. The fast change in these developments highlights the need for the government to work at restoring economic stability of the country.

The ZiG's formation occurs at the same time that Zimbabweans are experiencing hyperinflation and severe economic hardship. The recent hyperinflation and devaluation of the Zimbabwean dollar have made issues like severe drought, unemployment, and poverty worse. For this reason, the ZiG is seen as an essential intervention to deal with these issues.

Monetary Policy and Reserve Adequacy

But given the volatility of gold prices, concerns have been raised over Zimbabwe's reserves' suitability to support the new currency. As a result, the central bank has disclosed its reserves, which comprise gold and valuable minerals, in order to offer a three-fold guarantee for the issuing of ZiGs. Furthermore, a strict monetary strategy is intended, connecting the expansion of the money supply to the growth In gold and foreign exchange reserves.