With a noble aim of ultimately pinning raging inflation down, the country’s central bank introduced the “ZiG,” a new e-currency backed by gold, on Friday, April 5th, 2024. This is another episode in developing the economics of Shirkat’s efforts to address an economic crisis lasting for over two decades.
John Phaninza Mangudya, the governor of the Zimbabwe Reserve Bank, defines “Zimbabwean Gold” (ZiG) as the emblem of “simplicity, certainty, and predictability” in financial matters. Unlike the Zimbabwean dollar, which suffered from hyperinflation in the late 2000s, the ZiG will be backed by a combination of factors: national gold reserves, other currencies of the world as well as other precious mineral assets.
This multipronged strategy looks into the main causes of before-times hyperinflation. The Zimbabwean dollar’s valuation bore no resemblance to actual value as the government printed vast amounts to match its expenditure, thus causing a vicious cycle of price hikes and depreciation of the currency. Through the anchor of ZiG to a basket of assets, the central bank authorities expect to instill confidence and avoid expressing it.
The conversion and exchange details of ZiG will start to develop as per the market. Nonetheless, financial masterminds proffer the theory that it will be built along the currencies that are already in existence, mainly at the start. This may create an extensive financial setting in the short term. Yet the long-term plan is to move entirely to ZiG.
The existence of the ZiG project is conditional on three aspects. Public trust is paramount. In case Zimbabweans do not believe in the government’s ability to sustain the currency value, they might avoid it by using US dollars instead. In addition to that, the Central Bank should practice fiscal discipline to prevent the ZiG value from being lost due to inflation.
Similarly, the quantity of gold backing the currency is a key factor as well. Prudent allocation will become a reason for trustworthiness, whereas the inadequate one will be meaningless. The transparency of the gold reserves will be important which could include the process of buying and selling.
Everyone in the international community will be closely monitoring this experimentation process. If Zimbabwe could bring inflation under control with the ZiG, its case might serve as an example for other countries that are yet to tackle the same problems. On the other hand, the road ahead is fraught with obstacles, and only time will tell whether the ZiG can lead to the relief of the economic difficulties of Zimbabwe.
