Mnangagwa's adviser says ZiG is 'doomed', warns RBZ Governor

Local economist and adviser to President Emmerson Mnangagwa, Eddie Cross, has issued a stark warning to Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu, cautioning that the country's new Zimbabwe Gold currency (ZiG) is on a perilous path. In an open letter, Cross expressed deep concerns about the currency's viability, urging the central bank to change course before the ZiG collapses.

"I have a deep respect for the intellectual and institutional capacity of our Reserve Bank," wrote Cross, acknowledging the expertise of Mushayavanhu and his team. However, Cross disagreed with the governor's confidence in the ZiG, warning that if the RBZ continues with its current policies, the currency will fail "more quickly than you think."

The crux of Cross's argument lies in the RBZ's method of compensating exporters. He explained that since April 2024, mining companies have been receiving Zimbabwe Gold-denominated Treasury Bills (TBs) with a 6% interest rate in exchange for 25% of their export earnings. Cross revealed that this forced liquidation into the local currency, which involves about US$250 million a month, has already resulted in a substantial devaluation of the Treasury Bills.

"That week, the governor had devalued those TBs by 84% – wiping out ZIG 14 billion with the stroke of a pen," Cross noted, calling it a "gross deduction" from exporters' earnings, while benefiting the government by providing them access to undervalued funds.

Cross criticized the government for actions that contradict the stated goal of "dedollarisation," such as raising civil servants' hard currency allowances while depreciating the local currency. He pointed out that forcing exporters to accept devalued Treasury Bills instead of real value currency undermines the economy.

"The word on the street is that [ZiG] is worthless. Can we really disagree?" Cross asked rhetorically, reminding readers of Zimbabwe's economic turmoil in 2008 when the hyperinflation era rendered the local currency worthless.

In a biting critique, Cross rejected the notion that the ZiG is a gold-backed currency, calling such claims "nonsense." He argued that the only true test of a currency is its "convertibility on demand," stressing that if the ZiG cannot be freely exchanged for a stable currency, it will inevitably fail.

Cross also criticized the RBZ's policy of restricting the circulation of the ZiG by increasing reserve requirements for banks, which, he said, has driven down confidence in the currency.

To avoid another collapse, Cross recommended a radical shift in policy: allowing exporters to sell their hard currency on the interbank market at a fair exchange rate, enabling the RBZ to build reserves and restore the value of the ZiG. He suggested that the government should stop siphoning hard currency from the private sector and instead purchase it at market rates.

"If we cannot introduce all the measures required to achieve this... then increase the liquidation threshold until the currency stabilises," Cross advised, proposing a return to a stable exchange rate of 12 to 1 against the US dollar.

In his closing remarks, Cross offered a solution that would involve converting the national budget to the local currency and making all taxes payable in ZiG. This, he believes, could help dedollarise the economy over time and restore confidence in the local currency.

"Sorry to be so blunt, John, but it is the only way to go forward," Cross concluded, calling for immediate action to prevent a repeat of Zimbabwe's past monetary disasters.