Zimbabwe’s gold-backed currency, the ZiG, strengthened for a second straight day since launching earlier this week, even though not all of the nation’s banks have fully switched to using the new unit.
The currency rose 0.2% to 13.50 to the dollar on Wednesday, according to Reserve Bank of Zimbabwe data posted on its website.
That brings the new unit’s cumulative gain since it started trading earlier this week to 0.4%. It’s a marked departure so far from its predecessor, the Zimbabwe dollar, which had lost value every single trading day of this year until its abandonment last Friday.
Authorities have linked the ZiG to the price of gold in an attempt to reduce volatility.
A single ZiG is worth about 7 US cents, the price of a milligram of gold. Still, central bank Governor John Mushayavanhu on Friday denied that the southern African nation is returning to the gold standard.
The central bank said it will use the differential between local inflation rates calculated using both the Zimbabwe and US dollars, and the movement in the price of a basket of precious minerals held as reserves to fix the ZiG rate.
Zimbabwe uses a blended inflation rate based on both currencies, because they’re the most common monetary units in the country.
“The weights will be determined by the composition of reserve assets,” it said.
Gold, which has surged 20% since mid-February, was little changed on Wednesday.
The ZiG — short for Zimbabwe gold — is backed by 2,522 kilograms (88,960 ounces) of gold and about $100 million in foreign-currency reserves held by the central bank. It’s Zimbabwe’s sixth attempt at creating a currency since 2008.
The latest currency reform has not resulted in any meaningful change, with authorities only having “effectively revalued” the Zimbabwe dollar from more than 30,000 per US dollar to 2,500, said Harare-based economist Tony Hawkins.
“We are having a period of confusion because of the adjustment to ZiG,” said Hawkins. “There is no longer an auction and firms will rely on a willing-buyer, willing-seller market, which is likely to struggle to meet demand. So, the price of ZiG will be dependent on supply.”
Most retail outlets are accepting payment in dollars for day-to-day transactions.
Government departments have had to halt some services as they wait for lenders to complete the currency switch.
Utility providers including the Zimbabwe Electricity Supply Authority have asked the public to settle bills in US dollars until local-currency payment services are restored.
By Wednesday, about half of the 27 financial institutions linked to national-payments platform ZimSwitch were able to process ZiG payments, it said in a statement on X.
Its chief executive Zabron Chilakalaka said transaction numbers were yet to pick up.
QuickTake
The institutions that have fully switched over to ZiG are now able to transfer funds in the local unit and bank cards work at point-of-sale terminals, Bankers Association of Zimbabwe President Lawrence Nyazema said.
To kickstart the interbank market, the central bank sold some foreign exchange to lenders yesterday at about 13.57 per US dollar, said Nyazema.
Meanwhile, the central bank said Zimbabwe dollar notes — which remain legal tender until the end of the month — were being rejected by some businesses. This “has resulted in the unavailability of ‘change’, thus forcing businesses, mainly commuter omnibuses to round-off prices to US$1,” Mushayavanhu said Wednesday in an emailed statement.
“Business entities where the notes have been widely used, including commuter omnibuses, shops, fresh vegetable markets, and vendors, are advised to continue accepting payment in Zimbabwe dollar notes until 30 April 2024,” the governor said.
