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Zimbabwe's plan to make ZiG sole currency faces sharp criticism
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Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu has recently suggested making the local currency, the Zimbabwe Gold coin (ZiG), the sole legal tender in the country. Despite Mushayavanhu's claims of ZiG's growing stability, economists have strongly condemned the proposal, warning that it could trigger a catastrophic economic collapse marked by hyperinflation and severe currency depreciation.
Mushayavanhu has been promoting what critics describe as "snake oil" monetary policies, asserting that the ZiG is now robust enough to become Zimbabwe's exclusive means of exchange. However, many economists argue that this portrayal is misleading and dangerous, predicting that unleashing the ZiG on the broader economy without adequate controls would send the currency into a rapid death spiral.
Professor Gift Mugano challenged the claims of ZiG's stability, stating, "ZiG's stability was technically bought by the Government of Zimbabwe (GoZ) by restricting its usage. ZiG cannot be used to pay for fuel, passports, certain taxes, and duties. This so-called stability is fake. If ZiG were truly stable, why is the government reluctant to use it as the mainstream currency for all transactions?"
International currency expert Steve Hanke weighed in on the situation, highlighting Zimbabwe's currency woes. Hanke described the Zimdollar (ZiG) as the third worst-performing currency globally, trailing only the Venezuelan Bolivar and the Lebanese Pound. According to Hanke, the Zimdollar has depreciated by an alarming 33% year-on-year.
"Zimbabwe's money supply (M2) is surging at 122% annually," Hanke noted. "As night follows day, inflation in Zimbabwe is currently a crushing 79% per year. President Mnangagwa is delivering a masterclass in economic mismanagement."
The ZiG's weakness is symptomatic of broader economic challenges Zimbabwe faces, including political instability, runaway inflation, a lack of foreign investment, and overall economic mismanagement. Historically, currencies in such conditions have struggled to maintain value, fueling volatility and eroding purchasing power.
As Zimbabwe contemplates cementing the ZiG as the sole currency, many economists caution that without fundamental reforms to control money supply and restore investor confidence, the move could ignite a fresh cycle of economic hardship for the country.
Mushayavanhu has been promoting what critics describe as "snake oil" monetary policies, asserting that the ZiG is now robust enough to become Zimbabwe's exclusive means of exchange. However, many economists argue that this portrayal is misleading and dangerous, predicting that unleashing the ZiG on the broader economy without adequate controls would send the currency into a rapid death spiral.
Professor Gift Mugano challenged the claims of ZiG's stability, stating, "ZiG's stability was technically bought by the Government of Zimbabwe (GoZ) by restricting its usage. ZiG cannot be used to pay for fuel, passports, certain taxes, and duties. This so-called stability is fake. If ZiG were truly stable, why is the government reluctant to use it as the mainstream currency for all transactions?"
"Zimbabwe's money supply (M2) is surging at 122% annually," Hanke noted. "As night follows day, inflation in Zimbabwe is currently a crushing 79% per year. President Mnangagwa is delivering a masterclass in economic mismanagement."
The ZiG's weakness is symptomatic of broader economic challenges Zimbabwe faces, including political instability, runaway inflation, a lack of foreign investment, and overall economic mismanagement. Historically, currencies in such conditions have struggled to maintain value, fueling volatility and eroding purchasing power.
As Zimbabwe contemplates cementing the ZiG as the sole currency, many economists caution that without fundamental reforms to control money supply and restore investor confidence, the move could ignite a fresh cycle of economic hardship for the country.
Source - online
