Zimbabwe has embarked on a significant initiative to tackle its persistent currency challenges with the introduction of a new foreign exchange and gold-backed “structured currency.
This move, unveiled in the maiden monetary policy statement by newly appointed Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu, aims to stabilize the country’s monetary system amidst soaring inflation rates.
The newly introduced structured currency, named Zimbabwe Gold (ZiG), derives its value from a combination of foreign exchange reserves and precious metals held by the central bank. This backing is intended to ensure the stability and intrinsic worth of the currency in the market.
The announcement signifies the latest endeavor by the RBZ to address Zimbabwe’s currency woes, following previous initiatives such as the introduction of gold-backed digital tokens and bond notes.
However, the gold-backed digital token faced criticism upon its initial introduction last year.
ZiG to Strengthen Zimbabwe’s Monetary System
RBZ governor John Mushayavanhu disclosed that the ZiG currency will be available in various denominations and will co-circulate with other foreign currencies under the multiple currency regime.
Local banks will commence the conversion of Zimbabwe dollar balances into ZiG, guided by interbank exchange rates and prevailing gold prices.
Mushayavanhu emphasized that the initiative aims to instill confidence in the country’s monetary system and offer a more stable medium for financial transactions.
Furthermore, the central bank has implemented a substantial reduction in the annual interest rate from 130% to 20%, with the intention of promoting investment and economic expansion by rendering borrowing more accessible.
Despite representing a significant departure from Zimbabwe’s traditional monetary landscape, the RBZ asserts that the stability of the new currency is underpinned by robust macroeconomic fundamentals and substantial reserve assets, including foreign currency and gold reserves.
While conventional fiat currencies rely on governmental regulation and central bank policies, structured currencies blend elements of both fiat and commodity-backed stablecoins.
New Policy Disrupts Financial Sector
Meanwhile, Bloomberg reports disruptions in local dollar transactions across Zimbabwean financial institutions due to the transition to the new currency.
Processing of local dollar transactions has been temporarily suspended until financial institutions adapt to accommodate ZiG. Once this transition is completed, regular banking services are expected to resume.
Several banks, including South Africa’s Nedbank Ltd., have experienced system downtime during the currency transition, necessitating system reconfigurations to align with the framework of the new currency.
Zabron Chilakalaka, CEO of ZimSwitch, a key payments platform provider, characterized the ongoing changes as a “rebasement” of current balances. While some banks can automate the conversion process, others require vendor support for a seamless transition.
Despite these challenges, transactions denominated in U.S. dollars continue to be processed without disruption. Zimbabwe’s history of currency reforms, notably during the hyperinflationary crisis of 2008, underscores the intricacy of such transitions.
Zimbabweans have been given a 21-day window to convert their old cash into the new currency.