Zimbabwe introduces gold-backed currency to combat inflation
Zimbabwe has taken a significant step in addressing its ongoing currency challenges by introducing a new foreign exchange and gold-backed “structured currency.”
The move, announced in the first monetary policy statement by new Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu, comes as the bank strives to stabilize the country’s monetary system amidst high inflation rates.
The new structured currency, known as Zimbabwe Gold (ZiG), is backed by a combination of foreign exchange reserves and precious metals held by the central bank. This backing aims to ensure the stability and value of the new currency in the market.
The development marks the latest effort by RBZ to tackle Zimbabwe’s currency challenges, following previous attempts such as the introduction of gold-backed digital tokens and bond notes.
Critics derailed Zimbabwe’s gold-backed digital token when it was first introduced last year.
ZiG to bolster Zimbabwe monetary system
According to RBZ governor John Mushayavahu, the ZiG currency will come in various denominations. He also clarified that the multiple currency regime will continue, allowing the new ZiG currency to co-circulate with other foreign currencies.
Local banks will start converting Zimbabwe dollar balances into ZiG, guided by interbank exchange rates and gold prices.
Mushayavahu also stated that the initiative is meant to bolster confidence in the country’s monetary system and provide a more stable alternative for financial transactions.
Some of the central bank’s measures also include a substantial reduction in the annual interest rate from 130% to 20%. This reduction is expected to encourage investment and economic growth by making borrowing more affordable.
While these measures represent a significant shift in Zimbabwe’s monetary landscape, the RBZ assures that the new currency’s stability is supported by strong macroeconomic fundamentals and substantial reserve assets, including foreign currency and gold reserves.
While traditional fiat currencies rely on government regulation and central bank policies, structured currencies borrow elements of both fiat and commodity-backed stablecoins.
New policy disrupts financial sector
Meanwhile, Bloomberg reports that the transition to the new currency has led to disruptions in local dollar transactions across financial institutions in Zimbabwe.
Processing of local dollar transactions is on hold until financial institutions adjust to accommodate ZiG. Once this transition is complete, normal banking services are expected to resume.
Several banks, including South Africa’s Nedbank Ltd., have experienced system downtime due to the currency transition, with the process involving reconfiguring systems to align with the new currency’s framework.
The report quoted Zabron Chilakalaka, CEO of ZimSwitch, a key payments platform provider, who described the ongoing changes as a “rebasement” of current balances. While some banks can automate the conversion process, others require vendor support for a smooth transition.
Despite these challenges, U.S. dollar-based transactions continue to be processed seamlessly. The country’s history of currency reforms, notably during the hyperinflation period in 2008, highlights the complexity of such transitions.
Zimbabweans have 21 days to convert their old cash into the new money.
