Zimbabwe Implements New Gold-Backed Currency to Address Inflation Woes

Image source: https://www.businessinsider.com/dedollarization-zimbabwe-introduces-gold-backed-currency-zig-dollar-inflation-brics-2024-4

In a bid to combat soaring inflation and stabilize the nation’s economy, Zimbabwe’s central bank has unveiled a fresh initiative – a gold-backed currency dubbed Zim Gold (ZiG). This move comes as part of broader efforts to address the long-standing economic challenges gripping the country.

Governor John Mushayavanhu of the Reserve Bank of Zimbabwe announced the introduction of ZiG during a press briefing in the capital city of Harare. ZiG, he explained, will be supported by not only gold but also by foreign currencies and other precious minerals. Mushayavanhu emphasized that ZiG will circulate alongside a variety of other currencies, with the central bank also implementing a market-driven exchange rate.

Effective immediately, banks will commence the conversion of existing Zimbabwean dollar balances into the new currency, Mushayavanhu stated. The new banknotes, presented during the briefing, will be available in eight denominations, ranging from one to 200 ZiG. These notes feature depictions of gold ingots being minted, along with the iconic Balancing Rocks that adorned the previous currency.

Zimbabweans have been given a 21-day window to exchange their old currency for the new ZiG, according to Mushayavanhu.

The Zimbabwean dollar has witnessed a drastic depreciation against the US dollar, with its value plummeting by nearly 100 percent over the past year. Officially trading at approximately 30,000 against the US dollar, and even higher on the black market, this depreciation has contributed to the country’s persistently high inflation rate, reaching 55 percent in March.

The introduction of ZiG aims to alleviate the economic pressures faced by Zimbabwe’s populace, already grappling with widespread poverty, soaring unemployment, and the adverse effects of a severe drought induced by the El Niño weather phenomenon.

However, concerns have been raised regarding the adequacy of Zimbabwe’s reserves to support the new currency, as well as the potential impact of fluctuating gold prices. President Emmerson Mnangagwa recently inspected the central bank’s vaults, revealing holdings of 1.1 tonnes of gold domestically and nearly 1.5 tonnes overseas. Additionally, the bank holds $100 million in cash and other precious minerals, such as diamonds, which could be converted to gold if necessary.

Mushayavanhu asserted that the combined value of these reserves exceeds $285 million, providing more than three times the necessary cover for the new ZiG currency. Furthermore, the central bank announced plans to implement a stringent monetary policy, tying the growth of money supply to increases in gold and foreign exchange reserves.

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