The Zimbabwean dollar, which was launched after independence, had a turbulent history and was abandoned in 2009 after financial paralysis eroded the value of the currency, leading to a recession.
It returned partially as real-time dollar total settlement in February 2019 and fully in June of the same year.
Speaking during the presentation of the postponed 2024 monetary policy statement yesterday, Moshayavanhu pledged to restore price and currency stability.
“I do not believe in quasi-financial activities. It will not happen under my watch. My mandate as stipulated in the Reserve Bank Act is very clear and I have no intention of taking on the tasks of others. I will do my job as Governor of the Central Bank as stipulated in the RBI Act.
He said the bank transferred all quasi-financial balances to the Treasury to clean up operations on the Fed’s balance sheet. Quasi-fiscal operations have been blamed for increasing the money supply.
“From April 5, 2024, banks must convert existing Zimbabwe dollar balances into the new currency which will be called Zimbabwe Gold (ZiG) to enhance simplicity, certainty and predictability in monetary and financial affairs. The new currency will be traded with other foreign currencies in the economy,” Mushayavanhu said.
“The swap rate will be guided by the interbank closing exchange rate and the gold price as of April 5, 2024. The swap rate will be used to make legitimate transfers of all dollar ZWL deposits in the banking sector; all loans and advances made by the sector in dollar ZWL; treasury bills in dollar ZWL; all outstanding auction allocations.” All export delivery obligations; all prices of goods and services in ZW dollars; and any other obligations denominated in ZW dollars.
Balances of ZWL$ will be converted to ZiG by dividing the interbank foreign exchange rate conversion into ZWL$ by converting the foreign exchange rate to ZiG.
For example, on Friday the central bank announced foreign exchange rates of 1 US dollar: ZWL$33 903 and 1 US dollar: ZiG13,5616. You can divide ZWL$33 903 by ZiG13.5616 to get approximately 2 499,9263.
This means that one ZiG equals ZWL$2 499.9263 or ZWL$ equals ZiG0,00040001179836.
So, if you earn ZWL$3,390,300 in monthly wages, in another example, you could multiply that amount by 0.00040001179836 to get ZiG1 356.16. In addition, you can divide this monthly wage by 2499.9263 to get ZiG1 356.16.
“When all existing ZWL$ balances are transferred, banks are directed to rename all existing ZWL$ accounts as ZiG accounts. The Gold Backed Digital Token (GBDT) accounts will no longer be called ZiG accounts but will be known as GBDT accounts,” Mushayavanhu said.
“All ZWL$ notes and coins held by account holders will be credited to their ZiG accounts using the applicable conversion factor. Banks will continue to accept these deposits for 21 days after April 5, 2024.
Citizens will use the official exchange rates US$/ZWL$ and US$/ZiG on any given day within 21 days to convert their ZWL$ balances to ZiG.
The Fed chief said the central bank has made special arrangements for those without bank accounts to exchange their $ZWL notes and coins at POSB and AFC Commercial Bank within 21 days.
“ZiG banknotes and coins are being issued in denominations of 1ZiG, 2ZiG, 5ZiG, 10ZiG, 20ZiG, 50ZiG, 100ZiG and 200ZiG which will be distributed through normal banking channels. The coins will be released in due course,” Mushayavanhu said.
ZiG will be backed by US$285 million of reserve funds held by the Fed, namely 2,522 kilograms of gold worth US$185 million and foreign currency worth US$100 million.
“A structured currency is generally defined as a currency linked to a particular exchange rate or basket of currencies and backed by a pool of foreign exchange assets, potentially including gold,” Moshayavanhu said.
“This means that a central bank can only issue domestic notes and coins when they are fully backed by a foreign reserve currency or foreign exchange assets, and the currency is fully convertible into the reserve currency on demand.”
He said the total local currency component of reserve funds which currently stands at 2.66 trillion Zimbabwean dollars requires full coverage by gold and cash reserves equivalent to US$80 million.
“I’ve told bank CEOs that if you want to bet against the dollar, stay in the game,” Moshayavanhu warned, adding that he had enough arsenal to win that battle.
The retention threshold will remain at 75% except for small-scale miners, he said.
“I’m a stickler for the rules and don’t come to me saying you want to keep 100%. This is not Animal Farm. We need foreign exchange to support the economy.”
Economist Prosper Chitambara said ZiG’s success was the result of several factors including, among others, strict adherence by the central government to legal limits with regard to government loans from the central bank.
“Dynamic supply and demand forces in the market should have a greater influence in terms of setting the foreign exchange rate. This also helps to enhance confidence in the entire foreign exchange management system.
He said the market needed to play a bigger role in setting the exchange rate.
The Fed will also introduce a market-determined foreign exchange management system that links the local currency to a composite basket of reserve assets composed of precious metals and foreign currency balances.
The Fed also reduced the bank interest rate to 20% per annum from 130% per annum to 20% per annum to reduce the cost of borrowing money and obtaining credit.
RBZ Bank has removed banking fees for individual bank accounts with a daily balance of USD 100 or less or equivalent in ZiG for up to 30 days.
“The rate has now come down to ZiG13,5616. If it is going to be sustainable, and reflected in the consumer price, then it is successful, and it will stimulate productivity to a large extent. But if not, there will be challenges,” industrialist Anthony Mandiwanza told NewsDay.
“The point is that banks should be able to give you foreign currency if you go and apply if your account is funded, and banks have no reason to hold that foreign currency if they can still get that foreign currency in the market. So, it depends on what Whether banks will be able to obtain foreign currencies on the open market, but the jury is still out.
Fed Monetary Policy Committee member Persis Guananyaya said he was more confident in monetary policy interventions.
He said: “When we addressed the issue of stability, we naturally expected everything to be in place.”
“We naturally expect the concerns of all constituencies to be addressed. Therefore, the issue of stability is seen to have been addressed through the introduction of a regulated currency.
He called on the public to support the new measures. Newsday
