Zimbabwe’s bold move towards financial stability with the introduction of the ZiG, a gold-backed currency, sees mixed reactions as it gains traction. Despite initial turbulence in commerce, including challenges for banks and businesses adapting to the new system, the ZiG strengthens against the US dollar. While the transition is underway, hurdles persist, with some sectors still reliant on foreign currency. The nation cautiously watches the ZiG’s journey amid hopes for economic revitalization.
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By Ray Ndlovu and Godfrey Marawanyika
Zimbabwe’s new gold-backed currency the ZiG strengthened a day after its debut, even as it roiled commerce nationwide as banks, retailers and utilities battled to switch to the new unit.
It gained 0.2% to 13.53 per US dollar, according to data published on the Reserve Bank of Zimbabwe’s website on Tuesday. It began trading Monday at 13.56 per dollar, using an exchange rate announced by Governor John Mushayavanhu during last Friday’s unveiling of the nation’s latest effort to create a functioning local currency.
The International Monetary Fund, which in February urged the liberalization of the exchange rate, said it will support authorities’ latest efforts to restore macroeconomic stability. Adding that it needed time to review the design and implications of the new currency arrangement before weighing in with an assessment.
The ZiG, short for Zimbabwe Gold, is the country’s sixth attempt to resuscitate the national unit. Its predecessor, the Zimbabwe dollar, lost value every trading day this year before being abandoned April 5.
The new currency is backed by 2,522 kilograms of gold and about $100 million in foreign currency reserves which the central bank said it holds.
The transition to the new currency from the Zimbabwean dollar has been a bumpy one. Most of the nation’s lenders and businesses said they were still working to switch their systems to ZiGs on Tuesday. Only a third of the 27 financial institutions linked to the ZimSwitch national payments platform are able to process ZiG payments, it said in an update.
The Zimbabwe Electricity Supply Authority is among those which urged customers to pay their electricity bills in US dollars. “Please note that our conversion to ZiG is still underway,” it said in a statement.
Government departments are also affected and some have halted providing services. The Foreign Affairs ministry said it has “temporarily suspended” document authentication services owing to disruption of automated teller machines, as lenders transition to the ZiG.
Businesses have until April 12 to fully transition their electronic systems to ZiG, Mushayavanhu said at the weekend. The Zimbabwe Stock Exchange is among the few institutions which have switched to the new currency. The switch to ZiG effectively halted a more than three-fold surge on the local bourse this year. Low volumes marked the first trading day using the ZiG, stock traders said.
The full acceptance of ZiG will depend on the market’s confidence in the new unit, according to IH Securities. The Harare-based brokerage firm sees the economy remaining “pseudo-dollarized” in the short to medium term, which is vital for stability.
About 80% of all transactions were being conducted in US dollars prior to the ZiG’s introduction, the central bank said.
The central bank has separately asked money dealers to provide it with an estimate for foreign currency demand.
It will also perform ad-hoc inspections “to monitor compliance by authorized dealers with measures outlined to operationalize the structured currency,” it announced in a circular sent to lenders on Monday and seen by Bloomberg.
Failure to comply would result in penalties, the central bank’s Tafadzwa Muvevi said in the directive.
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