Unpacking Zimbabwe’s New Currency, The ZiG.
Newly Installed RBZ Governor Dr John Mushayavanhu introduces new Zim currency, The ZiG.
The newly appointed Governor of The Reserve Bank of Zimbabwe, Dr John Mushayavanhu today presented his inaugural Monetary Policy Statement.
Dr Mushayavanhu, in his monetary statement, also announced the launch of a new currency for the Southern African nation. The currency is gold backed and will be called the ZiG.
The launch of the new currency, which comes into effect on Monday the 8th of April 2024, is yet another attempt by the Zimbabwean Government to stabilize the economy and reign in inflation, which has seen the current Zimbabwe Dollar losing over 76% of its value since the beginning of the year.
As at today the ZWL was trading at 26000 to 1USD on the interbank market whilst it traded at 33000 to 1USD on the parallel market.
Currently the country uses a multi currency basket system for transactions and these include the US dollar, which is the main currency of trade, the rtgs dollar, the South African Rand, the Botswana Pula as well as the Chinese Yuan among others.
Before the current rtgs Dollar, the Southern African nation of 16million had a wide range of local currencies that came in succession including the bearer’s cheques, the Agro cheques, as well as the Travellers cheque.
Here are a few key takeways from today’s Monetary Policy Statement:
● The Zimbabwe Gold (ZiG) replaces the Zimbabwe Dollar (ZWL) starting Monday 8 April 2024
● Financial institutions directed to rename Zwl accounts to Zig accounts.
● All loans, prices of goods, and any other zwl obligations converted to Zig.
● The new currency starts trading at 13.5616 against the US dollar.
● The Zig currency shall circulate with other currencies.
● The Multi currency system to stay until 2030 as per law.
● The Swap rate will be guided by the closing interbank rate today plus the closing gold price as of yesterday.
How have they come up with this rate you ask?
Governor Mushayavanhu says he has divided the current ZWL rate with today’s gold price.
See the breakdown below:
●The ZiG will come in coins (25c and 50c) and notes (1, 2, 5, 10, 20, 50, 100 and 200).
● The exchange rate will be market-determined, replacing the auction system, which ceased to exist in December 2023.
● All quasi-fiscal obligations moved to the treasury
● Banks will accept the old ZWL for the next 21 days
● ZWL deposit above ZW$100 000.00 to be subject to KYC and disclosure of the source of funds.
● The ZiG is to be backed by a reserve of US$100 million, 2,522kg of gold worth US$185 million, and other precious metals that the reserve bank holds.
● There is also a reserve of ZWL$2.6 trillion (US$80 million)
● 25% of total export receipts are to be surrendered to the RBZ and poured into the market.
● Banks will no longer charge monthly service and maintenance fees on individual accounts with US$100 or less
● Its Now mandatory for companies to pay 50% of their tax obligations in ZiG
● Retailers, shops, and mobile financial services have 7 days to configure their systems to ZiG
● Only when the RBZ expands its reserves will it then increase the money supply.
It remains to be seen how the new currency will be accepted by the inflation weary Zimbabwean market.
Some important questions to ask about this new currency:
1. Will the new currency be accepted at filling stations when one is purchasing fuel?
2. Will government departments that demanded exclusive use of the US Dollar in accessing their services, such as the passport office, the Civil registry and selected duty payments at ports of entry now accept the new currency?
3. Is the 2.6tonnes of gold and the USD$100m be enough to support this currency vis-a-vis import cover?
Below we quote a few prominent Zimbabweans as they reacted to the new currency:
Renowned Economist Tinashe Muparata had this to say on his X(@babanyenyedzi) account:
“Cutting two zeros and dividing by two to get a value doesn’t automatically mean interest rates fall from 130% to 20%. This egregious move is infact credit creation or money printing. Is the governor and his technical team ignorant of this point of economic theory? The governor has infact started printing from day one!”
Professor Gift Mugano, a Renowned economist also gave his take:
“The new currency has finally landed. Same old wine in the same old bottle.
As long as ZiG is not accepted/used exclusively at fuel stations, passport office, Zimra (payment of duties & taxes), schools, tuckshops, etc then forget about ZiG.
“Most importantly, if individuals/anyone can’t walk into a bank and buy /sell foreign currency the same way they do in the informal market/black market at an attractive rate, the forget about ZiG.”
