The Reserve Bank of Zimbabwe (RBZ) says the cash and mineral reserves supporting the new currency, Zimbabwe Gold (ZiG), have increased from US$285 million to approximately US$370 million in the past three months.
In an interview with The Sunday Mail, RBZ Governor John Mushayavanhu asserted that the central bank has consistently ensured that ZiG remains fully backed at all times. He said:
The Reserve Bank has been accumulating reserves from royalties of gold and conversion of in-kind royalties of other precious minerals such as diamonds, lithium and platinum to gold reserves.
As a result, the total reserves have progressively increased by about 30 per cent, from US$285 million as of April 5, 2024, to above US$370 million as of the end of June 2024.
The ZiG is backed by a reserve of foreign currency and precious metals, primarily gold, held by the central bank.
Mushayavanhu added that the ZiG had performed “exceptionally well” since its introduction on April 5 2024. He said:
Concerning the performance of ZiG in the past three months, I am happy to say that the new structured currency has lived up to expectations and has performed exceptionally well.
As a structured currency, the expectation is that the ZiG exchange rate should mimic the developments in the price of assets backing it, which include the price of gold and other precious minerals, and inflation differentials between the US dollar and ZiG inflation.
The Reserve Bank remains committed to maintaining the full backing of the new currency and engender desirable conditions for currency and exchange rate stability in the macro-economy.
Last week, President Emmerson Mnangagwa announced that the country’s new currency, the ZiG, will become the sole legal tender within the next two years, once it has fully penetrated the market.
However, not everyone is in full support of the President’s timeline. Prominent Zimbabwean economist Gift Mugano has cautioned the government against rushing to make the ZiG the sole legal tender before first establishing the minimum requirements for the new currency to succeed.
Mugano warned that prematurely enforcing the ZiG as the lone legal tender could have adverse consequences if the necessary economic conditions are not yet in place. Said Mugano:
The introduction of a local currency requires basic minimum requirements such as current account surplus, fiscal consolidation (we have to reduce our debt significantly to regions averaging 30% of GDP); a highly productive economy; single-digit inflation and stable exchange rates. In reality, it is very difficult to attain all these conditions at once. However, we must strive to build a productive and competitive economy.
I would like to argue that the best way to back our currency is to back it with production. We need disruptive structural policies, that is, industrial policy, agricultural policy, trade policy and energy policy & energy master plan. These policies must be anchored on twin objectives, that is, import substitution and export drive.
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