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Zimbabwe’s New Gold-Backed Currency Experiences Decline on Black Market

HARARE, ZIMBABWE — Zimbabwe’s freshly introduced gold-backed currency, Zimbabwe Gold, commonly referred to as ZiG, has encountered a downturn in the local black market, despite official assertions of its strengthening and promising future. Reporting from Harare, Columbus Mavhunga delves into the intricacies of this development.

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Songs extolling the virtues of embracing ZiG flood the airwaves, championing the currency introduced on April 5 at a trading rate of 13.56 against the U.S. dollar. Official data indicates that ZiG currently stands at 13.41 in the market. However, on the clandestine black market, it hovers around 20 units to the dollar.

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Chamunorwa Musengi, a street vendor in Harare, expresses skepticism regarding the new currency, which, for now, is transacted electronically, with physical notes and coins slated for circulation on April 30. Musengi adopts a cautious stance: “Let’s wait and see. Maybe it will bolster our economy temporarily. But I doubt anything substantial will change with the new currency, given the prevailing tight economic conditions. We’ve experienced this before. When bond notes were introduced, there was a brief stabilization before a downward spiral ensued. They claim ZiG is at around 13, but mark my words, it’ll likely end up at around 40,000 against the dollar.”

Bond notes, launched in 2019 after a decade of Zimbabwe’s utilization of the U.S. dollar and other currencies, serve as a poignant reminder of currency instability. Before their official discontinuation, bond notes had plummeted in value by approximately 80%, trading at roughly 40,000 to the dollar.

Samson Kabwe, a minibus conductor, eagerly anticipates the release of physical ZiG notes and coins: “We are in favor of ZiG, especially for obtaining change. We’ve faced a scarcity of small notes for change. The introduction of ZiG notes and coins would be a commendable move by the government. We need it urgently.”

Despite the introduction of ZiG, the government stipulates that commodities like fuel will continue to be traded in U.S. dollars.

Gift Mugano, an economics professor, casts doubt on the prospects of the new currency, drawing parallels with past failures: “In 2016, bond notes, backed by a $400 million facility from Afreximbank, failed to gain traction. Despite Afreximbank’s international repute, its backing wasn’t adequate to ensure the success of bond notes. The fundamental issues lie in the lack of sustained production in the economy, essential for economic stability, and pervasive confidence deficits. The public’s trust in the system has been eroded by recurrent monetary setbacks.”

Conversely, John Mushayavanhu, the newly appointed governor of the Reserve Bank of Zimbabwe, remains optimistic about ZiG’s prospects, citing its backing by gold reserves worth $175 million and cash reserves of $100 million in other minerals. “We are steadfast in our efforts to preserve our local currency from obsolescence,” Mushayavanhu asserts. “Previously, nearly 85% of transactions were conducted in U.S. dollars due to the local currency’s failure as a store of value. We aim to restore confidence in our currency and gradually transition towards its increased usage. It is my aspiration that by achieving a 70-30 split by year-end, followed by a progression to 50-50 usage in subsequent years, the public will exhibit indifference towards currency preference, thereby reinstating the local currency’s prominence.”

While Mushayavanhu exudes confidence, social media platforms buzz with reports of individuals and traders, including government entities, refusing to accept outgoing Zimbabwean currency, underscoring the enduring challenges facing the adoption of ZiG.

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