New currency: Fresh start for economy
ZIMBABWE’S newly launched structured currency, Zimbabwe Gold (ZiG), presents a new future of exchange rate, inflation and macro-economic stability, according to economic analysts and captains of industry.
Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu unveiled the new currency in Harare on Friday when he presented the 2024 Monetary Policy Statement (MPS) to guide the country’s monetary affairs for the year.
The MPS was eagerly awaited, as inflation, driven by exchange rate volatility in a country where prices are indexed to the United States dollar, had been driving goods and services beyond the reach of many.
Dr Mushayavanhu started his tenure amid sustained depreciation of the Zimbabwe dollar, which forced most economic agents to increase prices, tariffs and service charges constantly to stay afloat.
The depreciation continued to threaten the survival of the domestic currency, the Confederation of Zimbabwe Industries (CZI), the country’s most influential business lobby, said recently.
Because of the currency volatility, it added, the environment had become tough to operate in.
From January to March 2024, CZI said, the domestic unit had lost more than 49 percent of its year-opening value on the formal market and 30 percent on the parallel market.
On the inflation front, Zimbabwe’s annual inflation rose to a seven-month high of 55,3 percent in March from 47,6 percent in the previous month, the Zimbabwe National Statistics Agency said.
Keen on avoiding a repeat of experiences of the unpleasant past, the Government, through the central bank, has come up with what promises to be the sustainable panacea to the inflation scourge.
Among the coterie of the monetary policy interventions is the new structured currency.
Dr Mushayavanhu defined it as a currency “pegged to a specific exchange rate or currency basket and backed by a bundle of foreign exchange assets, potentially including gold”.
It means the central bank could only issue domestic coins and notes when fully limited to or backed by a basket of foreign currency or foreign assets.
The assets and currency should be fully convertible in the bank’s reserve currency on demand.
“The structured currency being introduced is anchored by a composite basket of currency and precious metals (mainly gold) held as reserves for this purpose by the Reserve Bank,” Dr Mushayavanhu said.
Dr Mushayavanhu said the domestic economy had lately been moving towards full dollarisation, with over 80 percent of market transactions now conducted in US dollars.
The new measures keep the new currency strong and drive its allure in domestic transactions.
All Zimbabwe dollar balances will thus be converted to ZiG at the ruling official rate.
Dr Mushayavanhu said ZiG will have a starting exchange rate of 13,56 to the US dollar.
Thereafter, the willing buyer, willing seller interbank market exchange rate will be used to convert into the country’s newly introduced structured currency.
Other interventions entail the introduction of a market-determined exchange rate system, where the central bank would use its foreign currency and precious commodity reserves to support the local currency.
The authorities will also require all tax quarterly payment dates to be met in the local currency. This is aimed at promoting demand and use of the domestic currency.
The central bank chief also committed to ending any form of quasi-fiscal operations that have been cited as being among the causes of instability.
Additionally, the RBZ said it would allow a market-determined exchange rate system, which it started implementing in January, as evidenced by the unrestricted movement of the official exchange rate, resulting in a narrower margin with the open market rate.
It also scrapped the foreign currency auction system, saying this was no longer necessary following the new policy measures, which guarantee forex on the formal market for all bona fide external payment obligations.
Economic analysts and captains of industry welcomed the 2024 MPS, saying it would promote macro–economic stability, as well as stimulate productivity in the productive sectors of the economy.
Mr Persistence Gwanyanya, an economist and member of the RBZ Monetary Policy Committee, hailed the MPS, saying the policy document brought renewed hope to the country’s monetary system and the economy at large.
“It (MPS) presents a future and a renewed hope for our currency, inflation and our economy at large. The issue of currency stability has grown to become a thorn in the flesh, but I think we are in the process of resolving it permanently.
“We have decided to link the currency to special minerals to manage currency stability through a structured currency called ZiG.
“This structured currency is going to be supported by measures to limit the growth of money supply and increase the demand for the ZiG product.
“We have also seen the improvement, interventions on the market for foreign currency with the abandonment of the foreign currency auction system and the adoption of a more transparent and more effective system where the central bank will continue to support, but will give the market greater leeway to be interacting,” he said.
He said following the launch of ZiG, Zimbabwe had reconfigured the local currency, which was increasingly having many zeros due to loss of value.
“We have reduced effectively that, which brings transactional convenience, which is good for the people and issues of divisibility have been addressed, and more importantly, the issue of the store of value has been addressed.
“So, what we expect now from here is a significant gain of ZiG and it is simple to see that we have got total reserve money, ZIG reserve money of about US$80 million against around US$300 million in foreign currency reserves we can use to support ZiG.
“And given where the exchange rate has been going, it is easy to see that with a supply of foreign currency in the market, the central bank is able to contain exchange rates,” said Mr Gwanyanya
Financial market analyst Mr George Nhepera echoed similar sentiments, adding: “The determination of the exchange rate through the link with gold price shall in the short and medium term eliminate the black market dominance which was benefiting only a few connected people at the expense of the general public.”
Under the recalibrated monetary policy, the central bank also lowered the bank policy rate to 20 percent from 130 percent per annum, reflecting the authorities’ confidence in the strength of the new currency.
Zimbabwe Revenue Authority chairman and former Dairibord Holdings Limited chief executive officer Mr Anthony Mandiwanza said the measures announced in the MPS, once they became effective, would tackle several challenges the economy had faced in the past.
“One needs to digest those measures and say how are they going to address the challenges that we faced in the past?
“Hopefully, if they do, the rate is now down to 13,56 and if it’s going to be sustainable, reflecting on the consumer price, then it (means the measures will be) working and to a large extent, this will stimulate productivity,” he said.
Dr Mushayavanhu’s MPS also maintained the standardised foreign currency retention threshold for all businesses except smallscale miners at 75 percent, which Mr Mandiwanza said was not an issue as long as the monetary authorities ensured the 25 percent surrender requirement became available when companies wanted to import.
The central bank last year increased the foreign currency retention threshold for exporters to 75 percent from 60 percent of their export proceeds after businesses raised concerns that higher exports surrender requirements made it difficult to access forex for critical capital expenditure and operations financing.
“The reason exporters would want a bigger chunk of retention is because when they want that foreign currency, they are not able to get it.
“So, the 25 percent is what they use now for their import cover. But if they are going to get it, as he (Dr Mushayavanhu) has said, why do you bother about keeping a retention of 25 percent. If it’s available, then it’s not an issue,” said Mr Mandiwanza.