New Zimbabwe governor introduces ‘gold-backed’ currency

Zimbabwe has introduced a new currency which will be backed by the country’s gold reserves, its newly appointed central bank governor announced on April 5.

Reserve Bank of Zimbabwe governor John Mushayavanhu said the new currency would be called the zig, standing for Zimbabwe gold. This is effectively the sixth time since 2006 that the authorities have introduced a new currency or redenominated an existing one.

The Zimbabwe dollar has been redenominated three times, in 2006, 2009 and 2009, in the face of massive inflation. The government then abandoned the dollar in 2015 for a multi-currency basket, before reissuing it in June 2019 and then replacing it with the zig.

The new currency would have an initial exchange rate against the US dollar of 13.56, Mushayavanhu said. “We want a solid and stable currency”, he said, adding “it does not help to print money”, the Financial Times reported on April 5.

President Emmerson Mnangagwa named Mushayavanhu as the next governor in December 2024, saying he would take office in May when John Mangudya’s term expired. But Mushayavanhu told media on April 5 that he was now the governor, as he toured the central bank’s headquarters with the president.

The authorities ordered businesses to start using the new currency on April 9, but an AFP report said its adoption was “chaotic”. Businesses took their payments systems offline to convert to the zig and long queues formed outside banks as depositors tried to remove their savings.

Most street traders were refusing to accept any currency except the US dollar, while children played with piles of discarded Zimbabwean dollars, AFP said. The previous currency, introduced in 2019, had lost “almost 100% of its value” against the dollar on unofficial markets in the last year.

Zimbabwe has approximately 2.6 metric tonnes of gold reserves, holding 1.1 tonne domestically and the rest abroad, Mushayavanhu said. At current international prices, that amount of gold is worth around $196 million.

It is not clear what the country’s total foreign exchange reserves are. According to official figures, Zimbabwe imported goods worth $7.5 billion in 2021.

Mismanagement and dollarisation

The country has been ruled for the last 43 years by the Zanu-PF party, which observers say has engaged in large-scale economic mismanagement and corruption. Mnangagwa seized power from his predecessor Robert Mugabe in a military coup in November 2017.

The authorities imposed a fixed exchange rate on the Zimbabwe dollar, but appear to have allowed it to float in early January. It had an exchange rate of 6,215 against the US dollar on January 1 and 31,725 on April 5, when the central bank announced the new currency.

The economy has become largely dollarised as many Zimbabweans use the US currency, though the government does not publish any  estimates of its use. Many citizens store cash at home rather than deposit it in banks that use the official exchange rate, observers say.

Estimating the size of Zimbabwe’s crisis is difficult due to the unreliability of many official statistics. The government said year-on-year inflation rose to 55.3% in March, its highest level in a year, but many observers describe this as a considerable underestimate.

Steve Hanke, an economics professor at Johns Hopkins University in the US, estimated from unofficial exchange rate data that Zimbabwe was suffering hyperinflation in 2017.  Hanke has called for Zimbabwe to accept dollarisation, saying that official data continues to understate the actual inflation rate.

In December 2021, the date of his most recent estimate, Hanke calculated Zimbabwean inflation was running at close to 100%.

New governor

Before becoming governor, Mushayavanhu was chief executive of First Banking Corporation Holdings, parent company of a Zimbabwean commercial lender. He worked at the company from 1997 until he was nominated to be central bank governor in December, an article in The Africa Report said.

The media outlet described the new governor as a close associate of the president. It said the two had worked closely together on a number of deals that the government had undertaken while Mnangagwa held senor Zanu-PF posts.

The chief secretary to the president, Martin Rushwaya, said Mushayavanhu had over 30 years’ banking experience, adding he had also worked at Standard Chartered bank. Standard Chartered left Zimbabwe in 2022, selling its business to First Banking Corporation.

Rushwaya said the new governor had a master’s and a doctorate in business administration.

Former president Mugabe first appointed Mangudya to a five-year term in 2014, and Mnangagwa re-appointed him in 2019. The president has now moved Mangudya to head the state-owned Mutapa Investment Fund, The Africa Report said.

Central Banking has contacted the Reserve Bank of Zimbabwe for comment.