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Zimbabwe launches new gold-backed currency to stem rising inflation and restore economic stability

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By Imelda Cotton - 
New Zimbabwe Gold currency ZiG

Zimbabwe is replacing its local currency with a new one backed by gold and foreign currencies in the hope that the stability will help bring down inflation.

The Reserve Bank of Zimbabwe referred to the new Zimbabwe Gold (ZiG) as “structured”, saying it would be anchored by a composite basket of foreign currency and precious metals (mainly gold) held as reserves for this purpose.

This backing is expected to prevent the currency from losing value like its predecessors.

The ZiG will replace the Zimbabwean dollar — also known as the Zimdollar or Real Time Gross Settlement dollar — which has lost three-quarters of its value so far this year.

It will come in denominations of between 1 and 200.

Immediate roll-out

Reserve bank governor John Mushayavanhu said the ZiG was being rolled out with immediate effect and banks would have to convert their current Zimbabwean dollar balances to the new currency.

He said the bank would also introduce a market-determined exchange rate.

Zimbabweans will have 21 days to exchange their inflation-hit notes for the new currency.

Foreign banknotes

In 2008, Zimbabwe abolished its own currency in favour of foreign banknotes such as the US dollar and the South African rand.

Eight years later, the southern African country introduced the bond note which was backed by the US dollar loan facility and was expected to remain on a par with it.

But the bond note crashed when the government began printing excess money.

Zimbabwe relaunched its own currency in 2019 but it has struggled to win public trust and more than 80% of domestic transactions are now conducted in foreign currency.

According to reports, it is currently the second worst-performing currency against the US dollar and has contributed to the country’s high inflation rate which — after climbing well into the triple digits last year — sat at 55% in March.

The inflation rate has added pressure onto Zimbabwe’s 16 million people who are already contending with widespread poverty, high unemployment and severe drought.

Stronger option

The Reserve Bank assured the nation that the new currency would be a stronger option, backed by a ban on overprinting.

It currently holds 2.5 tonnes of gold in its reserves and $100m in cash which is believed to be sufficient to back the new currency.

“The total amount of gold and cash reserve holdings of US$285m represents more than three times cover for the ZiG currency being issued,” the bank said.