Zimbabwe Stock Exchange (ZSE) Introduces New Gold-Backed Currency

In a significant move aimed at stabilizing the country’s monetary system, the Zimbabwe Stock Exchange (ZSE) has initiated trading in Zimbabwe Gold (ZiG), the nation’s new gold-backed currency. This development follows the recent decision by the country’s central bank to demonetize the Zimbabwean dollar as part of broader monetary policy measures announced on April 5th.

Key details about the introduction of ZiG include:

1. Replacement of Zimbabwean Dollar: ZiG has been introduced as the new official currency, replacing the Zimbabwean dollar (ZW$). The denominations of ZiG range from 1 to 200.
2. Exchange Rate Adjustment: The Zimbabwean Stock Exchange has adjusted trading on the bourse, with an exchange rate set at ZiG1 to ZW$2498.7242. This adjustment aims to facilitate smooth transition and trading activities in the new currency.
3. Rebasing of ZSE Indices: All ZSE indices will be rebased to 100 basis points to accurately reflect the performance of the market in the context of the new currency. Justin Bgoni, CEO of the ZSE, emphasized the necessity of this rebasing to align with the introduction of ZiG.
4. Monetary Policy Objectives: The introduction of ZiG is part of Zimbabwe’s efforts to address runaway inflation, which has led to widespread preference for trading in foreign currencies. The new currency is intended to be more stable and is backed by a composite basket of foreign currency and precious metals, primarily gold, held as reserves by the Reserve Bank.
5. Reserves and Currency Cover: According to the Reserve Bank of Zimbabwe (RBZ), the bank holds reserves of USD 100 million in cash and 2,522 kilograms of gold, providing more than three times cover for the new currency. This substantial backing aims to instill confidence in the ZiG.
6. Tax Obligations and Currency Conversion: The government has mandated that companies must pay at least half of their tax obligations using the new currency. Additionally, banks are instructed to convert Zimbabwean dollar balances into ZiG immediately, with a three-week window provided for ZW$ currency holders to deposit their notes and coins.
7. Monetary Policy Adjustments: Alongside the demonetization of the ZW$, the RBZ has slashed its central bank rate from 150% to 30%. This move is part of broader reforms aimed at stabilizing the economy and reducing inflationary pressures.
8. Market-Based Forex Market: Zimbabwe is transitioning to a market-based forex market, replacing the previous controversial auction system. The RBZ plans to seed the market with 25% of surrendered export earnings to facilitate stability and regain public trust in the local currency.

Read Also: Kenya’s annual inflation is anticipated to ease to 6.8% in 2024, aligning with a projected trend in the monetary policy rate, as forecasted by Fitch in its African Banks Outlook 2024.

Overall, the introduction of ZiG represents a significant milestone in Zimbabwe’s ongoing efforts to reform its monetary system and address economic challenges. With robust backing and policy adjustments, the government and central bank aim to create a more stable and sustainable currency environment for the country’s future growth and prosperity.