Inflation-hit Zimbabwe has a new currency – again.
Last week, the country’s central bank introduced a new gold-backed currency called Zimbabwe Gold, or ZiG, in a bid to tame rising prices that hit a seven-month high of 55% in March.
This is the country’s sixth attempt to create a new currency since 2008. Zimbabwe’s dollar – the country’s most recently used currency – has fallen 80% this year alone.
Confidence in Zimbabwe’s local currency is so low that around 80% of the country’s population transacts in US dollars.
On Thursday, Zimbabwe’s central bank governor John Mushayavanhu said the country had real gold and mineral assets to back the new ZiG currency. Mushayavanhu said Zimbabwe’s central bank held 2.1 tonnes of gold and other assets, including diamonds, equivalent to 0.4 tonnes of gold, according to Voice of America.
ZiG began trading on Monday at the exchange rate of 13.56 per dollar set by the central bank.
Reservations on Zimbabwe’s new currency
There are reservations regarding the new ZiG currency.
In a note on Sunday, Hasnain Malik of the Tellimer research firm wrote that Zimbabwe’s economy needs fundamental solutions such as reductions in the budget deficit and external debt, not a new currency.
However, switching to the new ZiG currency could solve at least one problem, to begin with: the shortage of American coins.
According to the BBC, the shortage of US coins in Zimbabwe has led people to receive their change in the form of candies, chocolates and pens.
Zimbabwe tries to get rid of the US dollar
If successful, ZiG may be able to replace some, if not all, of the transactions that currently take place with the US dollar.
Zimbabwe has already applied to become a member of the BRICS New Development Bank, which seeks to expand the use of local currency loans.
Zimbabwe’s central bank said in its 2024 monetary policy statement, released last week, that it would prepare a “structured roadmap to gradually promote the increased use of the new local currency.”
For starters, it requires companies to pay at least half of their quarterly taxes in ZiG, according to the central bank report.
This African country has been trying for years to get rid of the American dollar, without much success. The country has experienced soaring inflation due to years of economic mismanagement under its former leader, Robert Mugabe.
At one point in 2008, annual inflation reached 500 billion percent, according to the International Monetary Fund.
The government of Zimbabwe banned the use of foreign currencies as legal tender in 2019. The country’s former central bank governor said at the time that the country’s economy was “at the mercy of US dollar prices, which are driving inflation.” the BBC reported.
The country was, however, forced to lift the ban in June 2022 to curb inflation.
The government initially planned to end the multi-currency system in 2025, but extended it until 2030.
businessinsider
