'New ZiG currency is a short term gimmick,' says some economist

An economic expert has criticized the recently launched Zimbabwe Gold (ZiG) currency, asserting that it lacks substance to effectively revitalize the economy, warning that the nation has once again resorted to failed economic strategies.

These comments follow the unveiling of the 'structured currency' outlined in the Reserve Bank of Zimbabwe (RBZ) Monetary Policy Statement (MPS) presented by the new governor, John Mushayavanhu, on Friday.

ZiG is backed by a composite basket of foreign currency and precious metals, primarily gold, held as reserves by the central bank. Starting from April 5, 2024, the banking sector will convert current Zimbabwe dollar balances into this new currency.

However, economist Prosper Chitambara argued that the primary setback of this initiative is the lack of confidence. He emphasized that confidence is crucial for economic agents to trust or have faith in a currency and the institution managing it. Chronic high inflation in the country has led to a significant confidence deficit in the local currency, exacerbated by unsustainable growth in money supply and subsequent depreciation.

Chitambara highlighted the importance of reserves in supporting a country's currency by providing liquidity, stabilizing the exchange rate, and maintaining confidence in the economy. However, he pointed out that the current reserves may be insufficient to adequately support ZiG, especially concerning the SADC convergence criterion specifying import cover.

To sustain ZiG, Chitambara stressed the necessity for fiscal and monetary discipline, reducing inflation, boosting foreign reserves in line with SADC targets, and amending the RBZ Act to ensure its independence.

Despite assurances of better days ahead, Chitambara expressed skepticism, citing economic shocks and persistent droughts as challenges to maintaining the MPS. He emphasized that the country's currency crisis stems from deep-rooted structural and institutional issues, advocating for a comprehensive and inclusive approach anchored on social dialogue.

In addition to economic concerns, civic society organization ActionAid Zimbabwe criticized ZiG, arguing that it fails to address the root causes of the nation's economic challenges and lacks transparency. They urged the government to prioritize reforms addressing corruption, mismanagement, and promoting good governance to achieve true economic recovery and inspire confidence among Zimbabweans.