PREVIEW
Mnangagwa’s government executes yet another policy U-turn in bid to keep struggling currency afloat
The government’s repeal of exchange rate controls is set to speed up the demise of the Zimbabwe Gold (ZIG) currency, just a year after its introduction.
The move by the Finance Ministry on 15 April is the latest of several contradictory policy decisions by officials who have been flailing, attempting to keep afloat the Zimbabwe Gold (ZIG), the Zimbabwe African National Union-Patriotic Front (ZANU-PF) government’s sixth attempt to launch a viable currency since 2009.
In March, the Governor of the Reserve Bank of Zimbabwe (RBZ) John Mushayavanhu announced that companies were free to use whatever exchange rate they preferred, only to drop the policy days later (AC Vol 66 No 7, Policy U-turns deepen confusion over gold-backed currency). Now the government has pivoted back to a floating system.
The ZIG has lost around 50% of its value since being launched a year ago at a rate of 13.56 against the United States dollar.
‘The ZiG is fast going into extinction,’ Imara Asset Management Chief Executive Officer John Legat and Chief Investment Officer Shelton Sibanda wrote in a note to clients last week. Its demise won’t be due to the rapid devaluation that doomed Zimbabwe’s previous efforts to establish a local currency, ‘but through irrelevance,’ they said.
The ZIG is backed by Zimbabwe’s gold and foreign currency reserves. But the key problems is that businesses and consumers have not moved away from using dollars to complete transactions (Dispatches, 14/2/24, A new gold standard).
Legat and Sibanda, the top officials at Zimbabwe’s largest brokerage firm, estimate that 80% of transactions in Zimbabwe are being conducted in dollars, with payments in South African rand also outstripping those made using the ZIG.
Multiple economic failures are ramping up opposition to President Emmerson Mnangagwa, who has faced recent protests demanding his resignation. They were called by a senior ZANU-PF figure and war veterans’ leader, Blessed ‘Bombshell’ Geza, who is rallying support against a ruling party faction which wants the president to rule until 2030, beyond a two-term limit.
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