Navigating Zim's currency conundrum

IN recent years, Zimbabwe has confronted formidable economic challenges including currency volatility, liquidity constraints and overreliance on foreign currencies. Amidst these complexities, discussions surrounding the adoption of a structured currency, particularly one backed by gold reserves, have gained momentum. This article seeks to delve into the concept of a structured currency, evaluate Zimbabwe's gold-backed currency (ZiG), and provide expert insight into critical monetary policy improvements needed for sustainable economic stability.

Understanding structured currency:

Structured currencies are monetary systems backed by tangible assets such as gold or commodities, o ering stability and intrinsic value. Unlike at currencies, they aim to mitigate the risk of hyperin ation and currency devaluation by anchoring their worth in tangible assets.

Characteristics of a structured currency:

Backed by tangible assets: ensures intrinsic value and stability.

Stability and predictability: provides con dence to users and investors.

Limited supply: prevents overprinting and in ationary pressures.

Transparency and accountability: ensures clear mechanisms for asset backing and currency issuance.

Evaluating Zimbabwe's GoldBacked Currency (ZiG):

While ZiG aligns with the principles of a structured currency, challenges abound. The Reserve Bank of Zimbabwe's (RBZ) precarious nancial situation, characterised by a substantial auction backlog ($740 million) and reserves of only $300 million, raises concerns. Furthermore, the RBZ's decision to withhold ZiG payments for at least a year exacerbates uncertainties.

Monetary Policy Improvements: Transparency and accountability: In the past, Zimbabwe has grappled with a lack of transparency and accountability in monetary policy, leading to market distrust and volatility. Corrective measures must include open disclosure of Treasury bill issuance, government expenditure, and currency conversion mechanisms. This entails establishing clear reporting mechanisms and regular audits to ensure compliance with transparency standards.

E ective reserve management: Historically, Zimbabwe has struggled with inadequate reserves to back its currency, exacerbating liquidity challenges and currency instability. Remedial action involves prioritising reserve accumulation through prudent scal management and strategic investment. Additionally, judicious utilisation of reserves, coupled with proactive risk management strategies, is essential to safeguard currency stability and mitigate liquidity risks.

Market participation and regulation:

Zimbabwe's currency market has been marred by restrictions and a lack of regulatory clarity, fostering black market reliance and hindering market e ciency. To address this, reforms should focus on promoting market participation by removing barriers to entry, enhancing regulatory oversight, and fostering competition. This entails implementing transparent and consistent regulatory frameworks that foster market integrity and ensure a level playing eld for all participants.

Sound economic governance: Weak economic governance in Zimbabwe has impeded scal discipline and undermined monetary stability. To remedy this, a concerted e ort is needed to uphold principles of sound economic governance, including transparent budgeting, prudent scal management, and independent central bank oversight. Strengthening institutional capacity, enhancing accountability mechanisms, and fostering a culture of scal responsibility are crucial steps towards restoring con dence in the nancial system.

Challenges facing ZiG amidst US dollar reliance:

Zimbabwe's adoption of the Zimbabwe gold

(ZiG) currency, while promising in its potential to provide stability, is not without its challenges. Chief among these challenges is the country's entrenched reliance on the US-dollar for essential transactions. Here's a breakdown of the key obstacles ZiG faces:

1. Essential expenses in USD: Ordinary Zimbabweans encounter numerous unavoidable expenses denominated in US dollars, including rent, fuel, school fees, healthcare, government services, and external travel. These USD-denominated costs represent a signi cant portion of individuals' expenditures, particularly rent, which stands out as the largest USD expense for many.

2. Limited access to USD: Despite earning income in ZiG, individuals face obstacles in converting their local currency to USD to cover essential expenses. O cial channels for currency conversion may be insu cient, leading people to turn to the black market, where USD is accessible but often at in ated rates.

3. Persistence black market:

The black market plays a crucial role in providing vital access to USD for individuals and businesses unable to obtain it through ofcial channels. Attempts to eradicate the black market have been unsuccessful, as it ful lls a widespread need in the absence of accessible alternatives. Given Zimbabwe's economic of the landscape and the challenges facing ZiG, hyperin ation remains a distinct possibility without signi cant policy reforms. While structured currencies o er potential stability, Zimbabwe's situation requires immediate action to address scal imbalances, enhance transparency, and restore market con dence. Conclusion

Navigating Zimbabwe's currency conundrum demands a comprehensive approach, combining structural reforms with transparent and accountable monetary policies. While ZiG holds promise, success hinges on e ective governance, prudent economic management and collaborative e orts to address systemic challenges. Without decisive action, the spectre of hyperin ation looms large, underscoring the urgency of meaningful reforms for Zimbabwe's economic future.

● This article was coordinated by Fungayi Antony Sox, a Hararebased communications consultant and brand development strategist.

● Mark Hussain Mtombeni is a quali ed accountant with the Midlands State University and the Chartered Accountants Academy. He boasts of expertise in Audit, Financial Reporting, and Tax issues having completed his articles with HLB Zimbabwe Chartered Accountants. He currently consults for several businesses across sectors and the views expressed here do not re ect the views of entities he associates with. He can be reached on

or +263 719 412 008