Finance Minister Mthuli Ncube said the Zimbabwe Gold (ZiG) currency is indeed backed by gold, but its exchange rate is not tied to gold.
Ncube made these remarks during an interview with journalists in Mt Hampden on Wednesday, following President Emmerson Mnangagwa’s State of the Nation Address (SONA) to parliament.
In recent days, many Zimbabweans have questioned how the central bank devalued the ZiG by 42.55 per cent against the United States dollar while gold prices were rising.
Ncube clarified that while the ZiG is backed by gold, its exchange rate is not fixed to it. He said (via The Herald):
There is a difference in fixing an exchange rate and there is a difference in backing an exchange rate. Gold backs the exchange rate. So as I speak, our reserves are about US$370 million.
And the central bank has been intervening in the market and has been able to sell the gold which is backing the ZiG to supply the market with much-needed US dollars for importation purposes.
Ncube said enough reserves are backing the money in circulation. He added:
But the issue is about the exchange rate. The rate itself as opposed to the backing, but adequate reserves are backing the ZiG.
Ncube said the government will implement measures to address the resurgence of the forex black market, but he declined to disclose the specific actions or timeline for these measures.
The Minister also said discussions are ongoing within the framework of the Tripartite Negotiating Forum (TNF) to improve the working conditions for civil servants. He said:
Yes, we have to, I think we have to. We are looking into it and we are already negotiating through the Tripartite Negotiating Forum to adjust the wages of civil servants.
Hopefully, we will reach an agreement soon and then we can move forward and assist the civil servants.
He said the adjustments will be implemented before the end of the year, adding that the induced devaluation of the local currency made the salary adjustment necessary. He said:
It is a matter that we are already looking into. That is why I mentioned that it will require some adjustment in wages.
Wages have to be adjusted both in the public sector and private sector to improve the buying power of wages for workers, so that has to happen.
But that is what happens when a currency is adjusted. It causes those other negative impacts.
But also there are other positive impacts on the business front. We are determined to save jobs in our formal economy.
It’s important to recognise that the exchange rate of a currency backed by gold can vary according to market conditions, supply and demand, and other economic factors.
In contrast, a currency fixed to gold (commonly referred to as a gold standard) maintains a set exchange rate with gold, meaning the currency’s value is directly linked to the price of gold.
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