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Few days after April fools day, on the 5th the newly appointed Reserved bank Governor John the 2nd Mushayavangu announced what most people, analysts and optimistic called a masterstroke! This was supposed to be the lasting solution to our ever lasting financial crisis.
As an independent and sovereign country, Zimbabwe must and it needs its own currency, must decide its economy and ultimately our production must honestly reflect the price of our currency, like in any other normal country.
The solution was a gold-backed currency, one that was supposed to withstand currency volatilities, uncertainties, and speculative behavior, this was basically trading with gold, an internationally accepted norm and high value.
Before this move Zimbabweans were trading using the bond notes and RTGS bank balances, millions of bank balances were converted to ZiG using a rate of 1 ZIg : $2500 which 400 ZiG. This basically means that Zimbabweans lost their value by 2500 during the conversion.
According to the Reserve bank
“Our currency is now pegged to the price of special minerals, 1 Zig is equivalent to 1 milligram of gold, and 1 milligram at the time of setting the rate was equaialnent to 7.3 Us cents “
The Reserve Bank governor stated the introduction of the ZiG currency was mainly to deal with
Currency and exchange rate instability has largely been driven by:
• High demand for foreign currency as a store of value. •
Reduced confidence due to continued currency volatility in recent months, and the widening margin between the interbank and parallel market exchange rates.
• Reduced use of the local currency for domestic transactions. • Lack of certainty and predictability on the exchange rate front.
• In view of the above, the Reserve Bank will introduce a market determined foreign exchange management system which links the local currency to a composite basket of reserve assets comprised of precious minerals (mainly gold) and foreign currency balances.
The bank also clearly stated in its monetary policy statement
• As at 5 April 2024, the Bank’s reserve asset holdings comprise of USD 100 million in cash and 2,522 kg of gold (worth US$185 million) to back the entire local currency component of reserve money which currently stands at ZW$2.6 trillion requiring full (100%) cover of gold and cash reserves amounting to US$90 million. The total amount of gold and cash reserve holdings of US$285 million represents more than 3 times cover for the ZiG currency being issued.
More importantly, the bank promised:
The starting exchange rate shall be determined by the prevailing closing interbank exchange rate as at 5 April and the London PM Fix price of gold as at 4 April 2024. • The intervening exchange rate shall be determined by the inflation differential between ZiG and USD inflation rates and the movement in the price of the basket of precious minerals held as reserves. The weights will be determined by the composition of reserve assets.
Fast forward to September the 20th, the RBZ made a statement that effectively devalued the ZiG currency by almost 50% causing another unplanned value loss over night, forcing many Zimbabweans to doubt the aunthenticity of the gold-backed currency.
this has caused serious bank balances loses to millions who had banked and hoped to keep value in the gold backed currency, or is it gold valued currency .
Once more again the bank has departed from its promise of saving value, protecting the currency by pegging it at gold value and having persuaded millions to even retain value in gold.
Finance minister Prof Mthuli Ncube recently said our currency is not gold, but backed by gold and there is movement in currency…yet another departurefrom the promise.
The question remains, if this was true gold, how did our gold coins lose the value of 1 zig is to 1 milligrams of gold to the current 26.45 rate
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