Zimbabwe has officially announced the launch of its new currency, the ZiG, effectively retiring the Zimbabwean Dollar, which has suffered from severe depreciation and hyperinflation over the years. The Central Bank of Zimbabwe, under the leadership of Governor John Mushayavanhu, declared the introduction of the ZiG, set to commence on April 8, 2024, with an initial exchange rate pegged at 13.56 to the US dollar. This move marks a pivotal effort by the Zimbabwean government to stabilize its economy and restore confidence in its national currency.
New Interest Rates and Currency Backing
Accompanying the launch of the ZiG is the establishment of a new interest rate of 20%, a stark contrast to the previous 130% rate associated with the old Zimbabwean Dollar. The Central Bank has indicated that the ZiG will be backed by a diverse basket of foreign currencies, gold, and other precious metals, aiming to provide a solid foundation for the new currency and ensure its stability.
A History of Currency Challenges
Zimbabwe’s decision to introduce the ZiG comes after several unsuccessful attempts to stabilize its national currency. The country has struggled with its currency since 2008 when hyperinflation reached an astronomical 500 billion percent according to the IMF, rendering the Zimbabwean Dollar practically worthless. In recent times, the Zimbabwean dollar has lost approximately 80% of its value in the official market, ranking it as the second worst-performing currency globally. This depreciation has led to a significant reliance on the US dollar for transactions within the country, with over 80% of transactions now conducted in foreign currency.
Inflation and Economic Measures
The introduction of the ZiG coincides with a period of accelerating inflation in Zimbabwe, which hit 55.3% in March, up from 47.6% the previous month. In response to these challenges, Zimbabwean President Emmerson Mnangagwa earlier signaled the administration’s plan to introduce a “structured currency,” hinting at a potential backing by gold. Finance Minister Mthuli Ncube later echoed this sentiment, suggesting the new currency’s potential gold support, which led to a delay in the central bank’s monetary-policy statement as plans were fine-tuned.
Governance and Policy Shifts
John Mushayavanhu, who took office as the central bank governor earlier than expected on March 28, has pledged to steer Zimbabwe towards more orthodox monetary policies. His leadership comes at a crucial time as the country seeks to navigate out of its prolonged economic woes and establish a stable and reliable national currency.
The introduction of the ZiG represents a bold step by Zimbabwe to address its long-standing economic difficulties and currency instability. With the backing of a diversified basket of assets and a commitment to orthodox monetary policies, the Zimbabwean government is optimistic about the ZiG’s potential to foster economic stability and growth.
