From ZWD to ZiG: A Look at Zimbabwe’s Latest Attempt at Currency Stability

Zimbabwe has struggled for almost half a century to get a stable currency to conduct transactions in the country. Inflation and hyperinflation have bombarded every attempt by the country to produce a local currency for domestic economic activities. The latest attempt by the Reserve Bank of Zimbabwe (RBZ) to introduce the ZiG—a currency backed by gold reserves—gives a shimmer of hope for the hyperinflation-battered economy. Is this the Messianic currency the country has been waiting for? The laws of demand and supply would tell.

The Struggle is Wayback

After gaining independence in 1980, Zimbabwe introduced the Zimbabwean dollar (ZWD) to directly replace the Rhodesian dollar. At first, it was a smart, patriotic move to have a currency bearing the country’s own name and not that imposed by the colonial masters. But within a few years, the value of the ZWD began to drop, and this was exacerbated by extensive poverty and unemployment. By November 1997, the ZWD had experienced its major crash (Mawowa & Matonga, 2010).

The country’s currency continued to dwindle, and by July 2006, the parallel market value of the ZWD fell to one millionth of a pound sterling. To put that in perspective, £1 was equivalent to Z$1,000,000 (Gumbo, 2010). In August 2006, the Zimbabwe Reserve Bank redenominated the ZWD, introducing a new currency code named ZWN, whose value was a thousand ZWD. Two years later, in 2008, the ZWR was introduced, and a year later, in 2009, the ZWL became the official currency of Zimbabwe, displacing the others.

But the country’s currency didn’t become stabilized; rather, it continued to dwindle, to the extent that the value was dropping on a daily basis. It got so bad that there was a 100 trillion dollar bill in circulation, the highest in the world (BBC, 2024). The government also allowed the use of foreign currencies to aid transactions within the country. This includes the South African Rand, Pound Sterling, the Japanese Yen, the Chinese Yuan, the Australian dollar, the Bostawana Pula, and the US dollar (Hungwe, 2014). Eventually, in 2009, the Zimbabwean dollar was abandoned as a legal tender, and in 2015, it was demonetized, with the Deposit Protection Corporation (DPC) ensuring that outstanding account owners were paid until the end of April 2016, when all beneficiaries were fully reimbursed (Tarisai, 2016).

A New Currency

The term “new currency” has become a cliché in Zimbabwe—it doesn’t sound new to them; they hear it every four market days. Every now and then, the government introduces a new currency, which almost immediately begins to lose its value and becomes worthless within a year or two. Zimbabweans have lost trust in the government, and the Reserve Bank of Zimbabwe (RBZ) issued bank notes. Businessmen and women in Zimbabwe would rather rely on foreign currency like the US dollar to carry out transactions. But the use of foreign currencies has its own limits. For starters, they are difficult to obtain, and their value is not reflected in the amount or quality of the goods being purchased. Another problem with transactions in foreign currencies is the lack of change. A customer may have to purchase additional goods that they do not plan on buying due to the scarcity of change.

In November 2016, the Reserve Bank of Zimbabwe took another leap of faith and introduced bond notes as a legal tender to ease cash shortages within the country and facilitate transactions. The bond notes were backed by a US$200 million loan and were in the denominations of $2, $5, $10, $20, $50, and $100. According to the RBZ, the bond notes were not currency in themselves but legal tender pegged to the U.S. dollar. For example, a Zimbabwean with a $2 bond note by right could purchase goods worth $2 by simply presenting the bond notes to the customer, and it was acceptable nationwide alongside a host of other foreign currencies (Reserve Bank of Zimbabwe, 2016).

In 2019, the Reserve Bank of Zimbabwe introduced the Real Time Gross Settlement (RTGS) dollar, known as the Zimdollar code, ZWL. It became the only legal currency for trade in the country, and the use of foreign currency was discontinued from June 2019 to March 2020, after which it was legalized again. The RTGS, or Zimdollar, became the new currency in Zimbabwe, and transactions within the country were carried out in ZWL. The RTGS were accompanied by coins in the denominations of 1¢, 5¢, 10¢, 25¢, 50¢, $1, and $2. But these were rarely used due to their low value. Even the $2 and $5 of ZWL were rarely used; only denominations of $10, $20, $50, and $100 were used in transactions nationwide (BBC, 2019).

Unfortunately, the stability of a local currency has not been established in the country. With the reintroduction of foreign currency, the RTGS also began to fall in value. Zimbabweans, again losing trust in the government and the Reserve Bank of Zimbabwe, began to rely on multiple foreign currencies for local transactions.  The RTGS remained the official currency of Zimbabwe from February 2019 until April 2024.

A Currency Backed by Gold

The Reserve Bank of Zimbabwe, however, wasn’t giving up on its quest to secure a stable currency for the country; like a phoenix, it wanted to rise from the ashes. As the latest attempt at achieving currency stability, a new currency was introduced on April 5, 2024; it was called the ZiG.

The ZiG is the sixth currency of Zimbabwe since independence in 1980. But there is something about the ZiG that made it stand out among its predecessors; unlike others, it is backed by other minerals, foreign currencies, and precious metals; it is a currency backed by gold.

ZiG, Zimbabwe’s latest attempt at currency stability, was backed by gold reserves with the theory that inflation would be controlled and the country would be able to have a stabilized currency. Seeing that gold is a finite resource and only a certain amount of it is available, its supply would be limited, and a fixed exchange rate could be set. In addition, gold has an intrinsic value, which would help the currency maintain its worth over time.

Furthermore, the incessant printing of more notes by the government and Reserve Bank of Zimbabwe, causing an influx of notes in circulation leading to inflation and hyperinflation, has eroded the trust that Zimbabweans have in the government. But a currency backed by gold where the government couldn’t just print out more notes and excessive spending is curtailed, making the government more fiscally responsible, would build trust and inspire greater confidence in the system. Finally, adopting the Gold Standard seems like a messianic currency to put the nation out of its currency misery.

The Challenges of a Currency Backed by Gold

In the 19th and 20th centuries, backing a currency with gold or any precious metal was applaudable. But the gold standard has become obsolete—it seems like something out of history books—and having a currency backed by gold in the 21st century is anachronistic. The sustainability of the currency hangs in the balance: the price of gold can fluctuate in the global market, leading to a drop in the price of gold and weakening the currency.

Secondly, adopting a gold standard doesn’t automatically restrain the government from manipulating the currency. The government is still in charge of the amount of gold that is used to back the currency. If not managed well, this can lead to instability.

In addition, a gold standard has a limited impact on the modern economy. In the 1850s, it would have worked well, but in 2024, economies are more complex; credit, international trade, and government spending play a significant role in any currency’s stability and inflation, going far beyond just supply.

Finally, pegging Zimbabwe’s latest currency to a precious metal like gold may bring about a lot of excitement, but there are a lot of loopholes in this development. The modern economy is way more complex, and a precious metal cannot dictate its direction.

The Way Forward

Most modern economies use a fiat currency system, where the value of the currency isn’t directly linked to a commodity or any precious metal like gold. The central bank manages the money supply through various tools to achieve economic stability and growth. The Pound Sterling, for example, is a free-floating currency that is not backed by anything but responds to the laws of demand and supply. While the U.S. dollar is backed by the government’s ability to generate revenue through taxes and debts and authoritatively compelling other participants to transact with the U.S. dollar, But the Zimbabwe situation is different; other attempts at currency stability have failed woefully. The ZiG—though having its own shortcomings—is another opportunity for the government to stabilize its currency.

The government of Zimbabwe has no option but to move forward and work with the ZiG to achieve the desired goals. There are, however, steps that must be taken to achieve this.

Firstly, the government has to come out clean. Transparency and discipline build trust. To make the ZiG work, the people have to trust in the government’s ability and discipline to use the currency to achieve economic growth and stability. Without trust, no matter how precious the metal being used to back a currency is, it would rise and fall like unattended dough.

Secondly, the ZiG notes starts its distribution from the 30th of April 2024. It faces the challenges of widespread acceptance and use due to the nation’s history of new local currency dwindling in value over a short period of time. This would require a lot of convincing and dedication on the part of the government for the populace to trust in the government’s handling of the new currency. The stability of a nation’s currency also depends on how the people of that nation perceive the currency. If they see it as valuable and use it in transacting business with that mindset, it becomes valuable.

Thirdly, the government has to control its spending and maintain fiscal discipline. The nation has seen the government print more money than is necessary, and excessive spending has led to inflation. For the ZiG to work, foul play should be avoided, and there should be no manipulation by the government or the RBZ.

In conclusion, the stability of a currency is a work in progress, and all hands need to be on deck to actually make it work. The sixth attempt at attaining a stable local currency for Zimbabwe is a project that is achievable with dedication and discipline.

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Reference

BBC. (2019). Zimbabwe introduces the RTGS dollar to solve the currency problem. Retrieved from https://bbc.com/news/world-africa-47361572

BBC. (2024). Zimbabwe launches a new gold-backed currency, the zig. Retrieved from https://bbc.com/news/world-africa-68736155

Brianne Hungwe. (2014). Zimbabwe’s multi-currency confusion BBC News online Retrieved from https://www.bbc.com/news/world-africa-26034078

Mawowa, S., & Matongo, A. (2010). Inside Zimbabwe’s roadside currency trade: The ‘World Bank’ of Bulawayo. Journal of Southern African Studies, Vol. 36, No. 2, The Zimbabwe Crisis Through the Lens of Displacement (June 2010), pp. 319–337

Joseph Gumbo. (2010). Institute for War and Peace. Gumbo, Joseph (27 July 2006). “Bills Put Zimbabwe Under “Martial Law””.

Reserve Bank of Zimbabwe. (2016). Press Statement on the Introduction of Bond Notes. Retrieved from https://www.rbz.co.zw/documents/publications/press/press-statement-on-the-introduction-of-bond-notes.pdf

Tarisai Mandizha. (2016). Demonetisation: DPC settles closed bank Zim dollar accounts. Retrieved from https://www.newsday.co.zw/2016/02/09/demonetisation-dpc-settles-closed-banks-zim-dollar-accounts