BY Tendai Ruben Mbofana
There was much hype when the RBZ (Reserve Bank of Zimbabwe) introduced a new currency on 5th April 2024.
The new currency – the sixth in just 15 years – was claimed to be backed by substantial gold (and other minerals) as well as foreign currency reserves.
Hence, the name Zimbabwe Gold (ZiG or ZWG in short).
This was supposed to ensure the stability of the ZiG – in the aftermath of several ditched local currencies due to shocking levels of depreciation.
The latest currency to see its departure in disgrace was the ZWL (Zimbabwe dollar), which, in spectacular fashion, lost 80 percent of its value at the beginning of 2024.
In spite of many experiments at maintaining the stability of the local currency – including a fixed exchange rate, Dutch auction system, and others – nothing seemed to work.
This was largely attributable to a lack of faith and confidence in both the local currency and, by extension, the government itself by the generality of the people of Zimbabwe.
Who can be blamed when Zimbabweans were turned into paupers overnight in the early 2000s, after losing all their savings, investment, and pensions due to an unprecedented meltdown of the then Zimbabwe dollar?
In November 2008, the inflation rate reached its all-time high at 79.6 million percent – characterized by a monthly inflation rate of over 50 percent.
In January 2024, renowned Johns Hopkins economist Steve Hanke placed Zimbabwe’s annual inflation rate at 1,024 percent, the highest in the world.
On the day of the introduction of the ZiG, on 5th April 2024, the ZWL was trading at 40,000 on the parallel market and 22,050 on the official market to US$1.
No wonder why the government had to bring in another currency.
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From the onset, the ZiG was touted to be pegged at the global price of gold, and, as such, its initial exchange rate was set at ZWG13,56 to the greenback.
The RBZ governor, John Mushayavanhu, announced that the central bank backed the ZiG with 2.5 tons of gold and US$100 million in foreign currency reserves.
On 7th July 2024, it was reported that cash and mineral reserves backing the new currency had risen from US$285 million to approximately US$370 million over the past three months.
Mushayavanhu said, “The total reserves have progressively increased by about 30 percent, from US$285 million as at April 5, 2024 to above US$370 million as at end of June 2024.”
This was expected to further buttress the local currency.
However, herein lies the problem.
How do we know that these supposed reserves are really there at the RBZ?
It should be remembered that the foundation of any gold-backed currency is transparency and trust that the reserves genuinely exist.
Merely telling us that there is US$370 million in gold and mineral reserves is not enough.
In the absence of any such transparency, there can never be any public confidence in the currency – leading to its rejection and loss of value.
Even if these reserves genuinely exist, there is still a need for public trust that they indeed do exist.
This could be one of the major reasons the ZiG is performing dismally, particularly on the much-used parallel market – where it is trading at ZWG27 to the greenback as opposed to the official ZWG13.80.
There can be no clearer red flag than a 40 percent depreciation of a new currency in just five months of its introduction!
This has led to a resurgence of shocking price increases of basic commodities – which could signal the return of economic instability and hyperinflation.
Furthermore, there is a major shortage of foreign currency on the official market – contrary to claims by the RBZ – which has, subsequently, forced both individuals and corporates to source the much-needed US dollars on the black market.
On top of this, the new currency is practically non-existent on the ground – with the vast majority of transactions occurring virtually.
As such, simply declaring that a currency is backed by gold is not and can never be, in itself, some type of magic bullet.
There is a need for a trustworthy verification method to confirm that, indeed, the purported gold and foreign currency reserves exist and are safely stored at the central bank.
Of course, on 4th April 2024, President Emmerson Dambudzo Mnangagwa toured the RBZ vaults to ostensibly ‘see for himself’ the gold reserves in stock.
That is well and good – but Mnangagwa is not an independent auditor and, therefore, can not be relied upon to be a voice of authority in this regard.
Besides, who is to say that the gold seen by the president was exactly the amount stated by the central bank or that it remained there after the tour?
How can we be sure that it was not immediately exported or even smuggled by the ‘big fish’?
Who can forget the stunning revelations we all watched in utter horror on the Al Jazeera investigative documentary, ‘Gold Mafia’?
In April 2024, soon after the introduction of the ZiG, the RBZ announced that there would be an annual independent audit of the mineral and foreign currency reserves as part of measures to rebuild confidence in the local currency.
Nonetheless, five months down the line, there has been nothing.
If ever Zimbabwe is sincere in its desire for a stable gold-backed currency, there is an urgent need for a truly independent audit of these reserves and the findings made public.
It is incomprehensible why, a whole five months after the introduction of the ZiG, there has not been an independent audit.
Surely, was the ZiG’s stability supposed to be anchored solely on Mnangagwa’s word that the alleged gold reserves were actually in existence at the RBZ?
Unfortunately, or rather fortunately, that is not how the world of economics works.
We need to see the gold, Mr. President.
We need to know that it is there and in the quantities stated.
Without that, then the ZiG is doomed.
● Tendai Ruben Mbofana is a social justice advocate and writer. Please feel free to WhatsApp or Call: +263715667700| +263782283975, or email: mbofana.tendairuben73@gmail.com, or visit website: https://mbofanatendairuben.news.blog/
