Business / Economy
Gold Backed Currency vs Dollarisation: Lessons from Zimbabwe's New ZiG
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Since April 2024, Zimbabwe has started a new monetary policy by introducing a gold-backed currency known as the Zimbabwe Gold (ZiG), to get rid of its reliance on the U.S. dollar. In the first few months, the central bank used roughly US$700 million from its reserves, which were made of gold, foreign currencies, and precious metals, to introduce the ZiG as a stable local currency in place of the previously volatile Zimdollar. At the same time, fiscal pressures and a history of hyperinflation led to scepticism of another local currency. Enter HFM, the trusted full-service forex broker HF Markets, which stands out as a dependable partner for traders operating in volatile foreign exchange, showing how robust, multi-regulated platforms can foster confidence during financial crises.
It is not the first time gold-based money has been brought back in Zimbabwe. Following years of hyperinflation, including the well-known peaks of 79 billion per cent in 2008 and multiple local currencies, the Reserve Bank of Zimbabwe (RBZ) brought back a familiar strategy: reserve-backed issuance. ZiG officially replaced the Zimdollar on 8 April 2024, backed by nearly US$700 million in hard assets, signalling a strong commitment to anchoring value. In the first few months of its existence, the ZiG traded at approximately 13.56 to 1 USD, with reporting indicating that transactions denominated in ZiG grew from 26 per cent in April 2024 to almost 43 per cent by May 2025. The IMF has stated conditional support for ZiG to become Zimbabwe's only legal tender, though extensive fiscal reforms are viewed as necessary before handing over the reins entirely.
Yet, beneath those encouraging figures, there is a complex reality. Despite the RBZ's efforts, the ZiG still faced an ongoing devaluation. By the end of September 2024, a 43 per cent devaluation reset the official exchange rate, and by April 2025, ZiG had depreciated by around 50 per cent against the dollar. With annual inflation exceeding 85 per cent in April 2025 -less than a year after its introduction- the currency reflects ongoing pressures that gold-backing alone cannot immediately address. Black-market trading further underscores public unease, with ZiG often trading significantly below official rates. As of June 2025, analysts noted a persistent 20 per cent gap between official and parallel markets, even as the RBZ pointed to a US$701 million reserve cushion and a benchmark interest rate of 35 per cent to keep stability.
Zimbabwe's monetary shifts demonstrate that a gold-backed currency has its own advantages and disadvantages compared to dollarisation. On one hand, a gold-backed fiat currency provides psychological comfort; the public can at least understand that there is a hard-asset base underpinning the money supply. This is particularly powerful in economies that have been plagued by hyperinflation and commodity price volatility. However, sustaining public trust goes beyond asset backing—it demands policy credibility. Zimbabwe's history has repeated instances of money-printing to finance budget deficits, undermining the fundamental lesson of gold-linking: that monetary authority should be limited.
On the other hand, dollarisation—the use of the U.S. dollar as either the primary or official currency—can quickly stop inflation, rebuild trust, and stabilise financial systems. Between 2009 and 2019, Zimbabwe operated under a multi-currency regime dominated by the U.S. dollar, which drastically reduced inflation, stabilised interest rates, and supported modest economic recovery. Yet dollarisation brings its own costs: loss of monetary policy autonomy, dependence on external reserves, and rigid responses to external economic shocks. Moreover, it can hinder sovereign responses to local development priorities and crisis management.
Comparing the two approaches, Zimbabwe's ZiG experiment acts as a hybrid: hard asset backing combined with a domestic currency in a gradual move towards full de-dollarization. This model is a reflection of practices in countries such as Ecuador and Panama, which are dollarized economies that also explore the use of local tenders. However, in Zimbabwe, recurring fiscal imbalances, a still-weak reserve buffer (with import cover under one month), and a fragile commitment to exchange rate flexibility have made the transition harder. IMF support for making ZiG the sole legal tender is subject to the implementation of deeper structural reforms: increased transparency in the foreign exchange market, consistent government spending discipline, and long-term debt sustainability.
The asset-based effectiveness of gold-backed money depends on maintaining prudent and transparent fiscal management practices. The Zimbabwean government established currency backing through gold reserves, yet it repeatedly changed exchange controls , which created market and consumer uncertainty. Such inconsistent policies weaken confidence and diminish the benefits which a stable currency would provide despite its fundamental backing.
Despite the current challenges, there are indications that progress could be possible. The monthly performance of ZiG reached its highest point in 2025 through increased gold reserves and forceful actions from the central bank. The RBZ expanded its reserve assets through reports which showed the central bank implementing stronger monetary policies that helped the currency achieve short-term success. The recent market increase exists at risk. Gold serves as a proven asset, yet it remains vulnerable to market price fluctuations. The gold-based currency ZiG faces ongoing challenges to its stability because of inadequate structural changes in government spending and global gold market movements.
The ordinary citizens of Zimbabwe face genuine risks because of this situation. The regular currency fluctuations have created a situation of price uncertainty, which has led people to lose trust in banking institutions and made saving money very challenging. Harare retailers recorded a ZiG-denominated price increase by 35% for one month, yet dollar-denominated prices remained minimal. Businesses encounter three major challenges, which include determining prices and dealing with taxation systems and securing credit facilities. The government made ZiG transactions mandatory, but corporate operations continue to use U.S. dollars for more than 70% of their transactions.
The success of Zimbabwe's currency system depends on establishing an institutional framework which enables either ZiG or any other currency to maintain value and provide useful services to its users. A gold-backed currency serves as a powerful symbol which helps nations rebuild confidence in their monetary independence. A gold-backed currency maintains symbolic value but fails to deliver real value when institutions lack stability and fiscal control, and policy transparency.
The future of Zimbabwe's monetary system depends on observing its commitment to a balance between gold and U.S. dollars. The path toward complete de-dollarisation through disciplined measures remains uncertain because the USD seems likely to serve as the functional and psychological reference point for an extended period. The coming months will demonstrate the most definitive signs about the country's policy direction.
It is not the first time gold-based money has been brought back in Zimbabwe. Following years of hyperinflation, including the well-known peaks of 79 billion per cent in 2008 and multiple local currencies, the Reserve Bank of Zimbabwe (RBZ) brought back a familiar strategy: reserve-backed issuance. ZiG officially replaced the Zimdollar on 8 April 2024, backed by nearly US$700 million in hard assets, signalling a strong commitment to anchoring value. In the first few months of its existence, the ZiG traded at approximately 13.56 to 1 USD, with reporting indicating that transactions denominated in ZiG grew from 26 per cent in April 2024 to almost 43 per cent by May 2025. The IMF has stated conditional support for ZiG to become Zimbabwe's only legal tender, though extensive fiscal reforms are viewed as necessary before handing over the reins entirely.
Yet, beneath those encouraging figures, there is a complex reality. Despite the RBZ's efforts, the ZiG still faced an ongoing devaluation. By the end of September 2024, a 43 per cent devaluation reset the official exchange rate, and by April 2025, ZiG had depreciated by around 50 per cent against the dollar. With annual inflation exceeding 85 per cent in April 2025 -less than a year after its introduction- the currency reflects ongoing pressures that gold-backing alone cannot immediately address. Black-market trading further underscores public unease, with ZiG often trading significantly below official rates. As of June 2025, analysts noted a persistent 20 per cent gap between official and parallel markets, even as the RBZ pointed to a US$701 million reserve cushion and a benchmark interest rate of 35 per cent to keep stability.
Zimbabwe's monetary shifts demonstrate that a gold-backed currency has its own advantages and disadvantages compared to dollarisation. On one hand, a gold-backed fiat currency provides psychological comfort; the public can at least understand that there is a hard-asset base underpinning the money supply. This is particularly powerful in economies that have been plagued by hyperinflation and commodity price volatility. However, sustaining public trust goes beyond asset backing—it demands policy credibility. Zimbabwe's history has repeated instances of money-printing to finance budget deficits, undermining the fundamental lesson of gold-linking: that monetary authority should be limited.
On the other hand, dollarisation—the use of the U.S. dollar as either the primary or official currency—can quickly stop inflation, rebuild trust, and stabilise financial systems. Between 2009 and 2019, Zimbabwe operated under a multi-currency regime dominated by the U.S. dollar, which drastically reduced inflation, stabilised interest rates, and supported modest economic recovery. Yet dollarisation brings its own costs: loss of monetary policy autonomy, dependence on external reserves, and rigid responses to external economic shocks. Moreover, it can hinder sovereign responses to local development priorities and crisis management.
Comparing the two approaches, Zimbabwe's ZiG experiment acts as a hybrid: hard asset backing combined with a domestic currency in a gradual move towards full de-dollarization. This model is a reflection of practices in countries such as Ecuador and Panama, which are dollarized economies that also explore the use of local tenders. However, in Zimbabwe, recurring fiscal imbalances, a still-weak reserve buffer (with import cover under one month), and a fragile commitment to exchange rate flexibility have made the transition harder. IMF support for making ZiG the sole legal tender is subject to the implementation of deeper structural reforms: increased transparency in the foreign exchange market, consistent government spending discipline, and long-term debt sustainability.
Despite the current challenges, there are indications that progress could be possible. The monthly performance of ZiG reached its highest point in 2025 through increased gold reserves and forceful actions from the central bank. The RBZ expanded its reserve assets through reports which showed the central bank implementing stronger monetary policies that helped the currency achieve short-term success. The recent market increase exists at risk. Gold serves as a proven asset, yet it remains vulnerable to market price fluctuations. The gold-based currency ZiG faces ongoing challenges to its stability because of inadequate structural changes in government spending and global gold market movements.
The ordinary citizens of Zimbabwe face genuine risks because of this situation. The regular currency fluctuations have created a situation of price uncertainty, which has led people to lose trust in banking institutions and made saving money very challenging. Harare retailers recorded a ZiG-denominated price increase by 35% for one month, yet dollar-denominated prices remained minimal. Businesses encounter three major challenges, which include determining prices and dealing with taxation systems and securing credit facilities. The government made ZiG transactions mandatory, but corporate operations continue to use U.S. dollars for more than 70% of their transactions.
The success of Zimbabwe's currency system depends on establishing an institutional framework which enables either ZiG or any other currency to maintain value and provide useful services to its users. A gold-backed currency serves as a powerful symbol which helps nations rebuild confidence in their monetary independence. A gold-backed currency maintains symbolic value but fails to deliver real value when institutions lack stability and fiscal control, and policy transparency.
The future of Zimbabwe's monetary system depends on observing its commitment to a balance between gold and U.S. dollars. The path toward complete de-dollarisation through disciplined measures remains uncertain because the USD seems likely to serve as the functional and psychological reference point for an extended period. The coming months will demonstrate the most definitive signs about the country's policy direction.
Source - Byo24News
