The Reserve Bank of Zimbabwe (RBZ) on Friday issued a new currency known as ZiG, which stands for Zimbabwean Gold.
ZiG will be structured and pegged at a market-determined exchange rate, Fed Governor John Mushayavanhu said. It replaces the Zimbabwean dollar, once largely known as RTGs, which has lost more than three-quarters of its value this year.
It will be traded alongside the United States dollar and other currencies such as the rand.
Zimbabwe has a long history of currency failure. In 2009, the country was forced to abandon the Zimbabwean dollar after the currency collapsed at the height of record hyperinflation.
For more than a decade, the country has used a multi-currency system. In 2016, the Fed introduced bond notes backed by US dollar facilities. The bonds were succeeded by the RTGs.
Veteran lawyer and former opposition lawmaker Tendai Biti (TB), who was finance minister during the dollarization era, told our senior correspondent Miriam Mangwaya (MM) in a wide-ranging interview that ZiG was doomed to fail because it was founded on shaky ground.
He said Zimbabweans had no confidence in the new currency, which was a major setback for Zimbabweans.
Below are excerpts from the interview.
M: Zimbabwe is among the countries with the highest inflation rates in the world. How effective is the move to introduce a new currency to curb inflation?
TB: Currency is just a medium of exchange and has nothing to do with inflation. You can change currencies a million times like I did, but that won’t deal with inflation.
Inflation is a byproduct of the fact that too much money is chasing too few goods, and we in Zimbabwe generate too much money through a government that prints money and cannot live within its means, a government that spends money as if it were growing on trees. .
They are obsessed with wasting money. When there is too much money in the economy chasing too few goods, commodity prices rise.
The second thing is that the things we spend money on are things we don’t produce ourselves. The economy does not produce what we eat.
If we go to the supermarket, 80% of the things we eat are imported and that requires US dollars, but we don’t have US dollars because we don’t produce.
The economy is shrinking. In the past 10 years, the average growth rate has been 1.5%, meaning the economy cannot grow, and if it cannot grow it suffers.
So the basic problem in Zimbabwe; Lack of financial consolidation.
Mada Masr: How has the government performed in terms of consolidating public finances over the years?
TB: Fiscal consolidation is what I was talking about when I was in government. Eat what you kill.
You balance the books. If you kill a mouse, you eat a mouse.
But the problem with Zanu PF, they kill rats all the time and want to eat an elephant.
It doesn’t add up. In economics, one minus two does not fit.
The answer is not minus one. It doesn’t work like that. So they can’t balance the books.
My dad made $30 and my mom knew we had to spend $20 and save $10.
But this government earns $30, but spends $100. There is a lack of financial discipline. So they can change currencies as they want but it won’t work.
M: Do you think Zimbabweans have confidence in the new currency?
TB: People have no faith or trust in this currency.
They have no faith or trust in anything Zanu PF and Mnangagwa do, so the currency is 60% backed by political trust or the social contract and not gold.
The world switched away from gold-backed currencies in the 1970s because we didn’t have enough gold.
No country has enough gold to back its currency, including the USA or China. But currencies are backed by trust and confidence in the government.
So in Zimbabwe, the currency will collapse because people have no confidence.
Remember we re-dollarized in 2017 because people lost confidence in the Zimbabwean dollar and bearer cheques.
There is no country in the world that has forcibly dollarized and been able to get rid of the dollar.
Once people lose confidence in their currency, it won’t happen. Once trust is lost, it is gone forever.
MM: What are the differences between ZiG and RTGS in terms of their ability to retain value?
TB: By introducing ZiG, they basically removed the zeros like they did in the 2000s when they tried to revalue the Zimbabwean dollar.
But it didn’t work.
The market will catch up. In a few weeks we will return to the exchange rate of 1000.
We will be in a situation that even they won’t understand, but that’s what we expect from Zanu PF’s madness and absolute dogs’ breakfast.
MM: So, this weekend the general public and businessmen will no longer be able to transact in Zimbabwean dollars to pave the way for banks to convert Zimbabwean dollar balances into ZiG. What are the implications?
TB: It’s a nightmare. Can you imagine if you were running Delta, Econet, etc.?
Accounting books, how are you going to manage it because you wake up one morning using RTGS and then the next morning you are using ZiG and the accountant has to prepare new books in Zig. It’s a dog’s breakfast.
MM: There is speculation that ZiG will not be recognized cross-border or make some payments locally, such as paying for fuel and so on. What are your views on that?
TB: It will not be recognized anywhere else. Introducing currency is a process. It’s not a one night thing.
It’s not like you wear a red shirt today, then a yellow or blue shirt the next day. It doesn’t work like that. It’s a process because you’ll be trying to build trust internally.
Imagine what South Africans will think when they see Zimbabwean traders approaching them with a tokoloshe called ZiG. They will just laugh and look for work elsewhere.
MM: Why do you think the Fed decided to name the currency ZiG instead of just renaming the notes and continuing to use the name Zim Dollar?
TB: The bottom line is that structured currency is the epitome of madness and organized insanity.
We should have continued using the Zimbabwean dollar, canceled the auction rate, and allowed the US dollar to continue, but because of Hadzina Kukwana (they are crazy), they did what they did yesterday. [launching the ZiG
currency].
M: You spoke earlier about people’s lack of confidence in the new currency. What could have been done to boost their confidence?
TB: We should have dismissed the government in August 2023. The only solution is to form a new government.
We should have done this in August 2023. This is not a monetary or economic problem. It’s the voters’ problem. We get the government we deserve.
MM: But we’re past August 2023?
TB: Section 59 of the Constitution states that Zimbabweans have the right to demonstrate and protest peacefully.
this is the only solution. Without this change, they will run this country until donkeys grow horns.
M: With the government introducing ZiG, it actually comes with an exchange rate against the US dollar as its value is not equal to the US currency.
How long do you think it will withstand market fluctuations and maintain its value?
TB: It’s just putting lipstick on a pig.
The market will take time in the next three days to understand and settle on the exchange rate.
But then it becomes a free for all. In the first two months, RTGS collapsed by 800% and ZiG will do the same as well.
MM: Suppose you regain your position as Minister of Finance, what will you do to address the economic crisis?
TB: I’m going to get rid of the Zimdollar and turn it into full dollars.
Workers’ wages in US dollars, abolishing the auction rate, dealing with Zimbabwe’s sovereign debt, putting money into the productive sector, dealing with climate shocks, replacing the Reserve Bank with a currency body, dealing with corruption.
I will put all criminals in prison, abolish the brokered money transfer tax, and provide incentives to industry exporters.
Liberalization of capital markets. In less than a second, the economy will grow by 7 to 8%. standard