Quote from Alex bobby on May 1, 2024, 4:03 AM

John Mushayavanhu, the new governor or the Reserve Bank of Zimbabwe, displays new banknotes of the country's currency

In Harare, Zimbabwe, the recently launched gold-backed currency is experiencing a decline on the local black market, despite officials' assertions of its strengthening and promising future. Columbus Mavhunga brings this report from the capital.

Even radio broadcasts are featuring songs encouraging citizens to adopt the new currency, dubbed Zimbabwe Gold, or ZiG, which was introduced on April 5 with an initial exchange rate of 13.56 to the U.S. dollar.

Official figures indicate that ZiG is currently trading at 13.41. However, on the black market, the rate is approximately 20.

Chamunorwa Musengi, a street vendor in Harare, holds a pessimistic view towards the new currency, which is currently traded electronically, with physical notes and coins set to enter circulation on April 30.

"Let's adopt a wait-and-see approach," he remarked. "Perhaps it will provide a temporary boost to our economy. But I doubt much will change with the new currency, given the current challenging circumstances. We've been through this before. When bond notes were introduced, there was a brief stabilization before a downward trend began. They claim ZiG is around 13, but I suspect it will eventually reach around 40,000 against the dollar."

Bond notes, introduced in 2019 after a decade of Zimbabwe utilizing the U.S. dollar and other currencies, had depreciated significantly, losing roughly 80% of their value and trading at approximately 40,000 to the dollar before their official discontinuation.

Samson Kabwe, a minibus conductor, eagerly anticipates the release of physical ZiG notes and coins.

"We're all in for ZiG, especially for small change," he expressed. "We've been lacking smaller denominations for change. If ZiG notes and coins enter circulation, it would be a significant move by the government. We want it as soon as possible."

The government has stated that for the time being, commodities such as fuel will continue to be transacted in U.S. dollars.

Gift Mugano, an economics professor, foresees a similar fate for the new currency.

"In 2016, we introduced bond notes backed by a $400 million facility from Afreximbank (African Export-Import Bank)," he explained. "Afreximbank is an internationally reputable institution. However, even this backing was insufficient to ensure the success of the bond notes, leading to their failure. Why are we struggling to maintain stability? The root causes lie in the lack of sustained production in the economy, as stability is reinforced through production. Additionally, there are confidence issues. People lack trust in this system due to past experiences of monetary losses."

John Mushayavanhu, the newly appointed governor of the Reserve Bank of Zimbabwe, expresses confidence in the success of the currency, citing its backing by reserves of gold and other minerals valued at $175 million, along with $100 million in cash reserves.

"We are taking proactive measures to ensure the viability of our local currency," he asserted. "Previously, nearly 85% of transactions were conducted in U.S. dollars due to the local currency's inability to maintain its value. Our aim is to restore its value, thereby revitalizing our currency. We are commencing with reserves worth $80 million, with plans to increase gradually. Ideally, we envision a transition where the local currency gains more prominence, aiming for a balance of 70-30 by year-end, followed by a gradual shift to 50-50 in subsequent years. Eventually, people will be indifferent to the currency they use, leading to the widespread adoption of our local currency."

Despite Mushayavanhu's optimism, social media platforms are filled with reports of individuals and traders, including government departments, refusing to accept the outgoing Zimbabwe currency.

In conclusion, Zimbabwe's introduction of a new gold-backed currency, Zimbabwe Gold (ZiG), has sparked both hope and skepticism among its citizens. While government officials like John Mushayavanhu express confidence in the currency's success, citing its backing by reserves of gold and other minerals, others like Gift Mugano remain cautious, drawing parallels to past failures with similar initiatives.

The success of ZiG will ultimately depend on various factors, including its ability to maintain stability and regain public trust. With the Reserve Bank of Zimbabwe's ambitious plans to gradually increase the usage of the local currency, only time will tell whether ZiG can overcome the challenges and become a reliable medium of exchange in the country's economy.

“We are doing what we are doing to ensure that our local currency does not die,” he said. “We were already in a situation where almost 85% of transactions are being conducted in U.S. dollars because [the] local currency was not living up to the function of store of value. We are going to restore that store of value so that we can start reviving our currency. So, we are starting at $80 million worth, and as we get more reserves, we will gradually be moving towards greater use of the local currency. It is my wish that if we get to the year (end) at 70-30, next year 60-40, the year after 50-50; by the time we get to 50-50 people will be indifferent as to which currency they are using. And that way we regain use of our local currency.”

While Mushayavanhu has that confidence, social media is awash with people and traders — including government departments — refusing to accept the outgoing Zimbabwe currency.