Zimbabwe's New Bullion-Backed Currency ZiG Gains Traction, IMF to Evaluate in June

Key Takeaway

• IMF acknowledges Zimbabwe's new bullion-backed currency, ZiG, as a significant policy move, aiming for stability after past failures.
• Central bank commits to backing ZiG with reserves and not financing government spending by printing money; interest rate reset to 20%.
• ZiG reaches highest level against USD at 13.21 per dollar; IMF team to visit Zimbabwe in June for economic evaluation.

Introduction of ZiG

The International Monetary Fund (IMF) has acknowledged Zimbabwe's introduction of a new bullion-backed currency, ZiG (Zimbabwe Gold), as a significant policy move. This marks the IMF's first substantive comment on the currency since its launch on April 5. A spokesperson for the IMF stated, "The introduction of ZiG represents an important policy action accompanied by several complementary policy changes — including monetary, exchange rate, and fiscal policy measures." This new currency is Zimbabwe's sixth attempt in the past 15 years to establish a stable currency, following previous failures due to hyperinflation and collapsing foreign exchange values.

The central bank of Zimbabwe has committed to not printing more ZiG unless they are backed by reserves and has explicitly pledged not to finance government spending by printing money. This approach aims to avoid the pitfalls that undermined previous versions of the local currency, which led to a predominant shift to transactions in US dollars. Since the launch of ZiG, the central bank has reset its benchmark interest rate to 20% from 130%, which was once the highest rate globally. The ZiG/dollar exchange rate is now published daily on the central bank's website.

Enforcement and Market Dynamics

The central bank's financial intelligence unit and police have taken measures to crack down on unofficial market trade in ZiG and have threatened to fine those not trading at the official exchange rate. Despite these enforcement actions, Deputy Governor Innocent Matshe emphasized that the currency's value is determined by market forces. "We don’t depend on enforcement," Matshe said. "We want the currency to find itself in the market as it should and build its reputation. It has managed to hold its value steadily."

On Thursday, the ZiG reached its highest level against the US dollar, touching 13.21 per dollar, which is 2.6% above its initial trading value on April 8. The IMF has also announced plans to send a team to Zimbabwe in late June for the country's regular economic health checkup. This visit will provide an opportunity to discuss and evaluate the performance of the new currency arrangement. Finance Minister Mthuli Ncube expressed hopes for a staff-monitored program in the second half of the year.

Broader Economic Context

Zimbabwe has been excluded from international capital markets since 1999 due to defaulting on its debts. The country is now striving to restore its international standing, despite concerns in Western capitals about its human rights record. While the US has lifted sanctions on some state-owned firms, it has imposed them on President Emmerson Mnangagwa and other top officials.

In the broader African context, other nations are also navigating debt repayment and restructuring challenges. For instance, Nigeria has issued bonds to refinance 4.9 trillion naira ($3.4 billion) owed to the central bank, aiming to spread out debt repayment burdens. Ghana's economic growth has exceeded IMF forecasts, reviving its $13 billion Eurobond restructuring plan and boosting investor confidence. Ivory Coast's credit outlook has been upgraded to positive by S&P, making it the best-rated sovereign in sub-Saharan Africa.

Street Views

• IMF Spokesperson (Cautiously Optimistic on Zimbabwe's new currency):

  "The introduction of ZiG represents an important policy action accompanied by several complementary policy changes — including monetary, exchange rate, and fiscal policy measures."

Management Quotes

• Innocent Matshe, Deputy Governor of the Central Bank:

  "We don’t depend on enforcement. We want the currency to find itself in the market as it should and build its reputation. It has managed to hold its value steadily."