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Zimbabwe will on Friday launch a new currency that it has said would be backed by the country’s gold reserves, the latest move by President Emmerson Mnangagwa’s government to tackle decades of monetary chaos.
Mnangagwa said after a tour of the central bank vaults that the southern African nation had sufficient gold to support the new “structured currency”, although analysts questioned the adequacy of these assets.
The change is being introduced after the collapse of the current Zimbabwe dollar accelerated this year. Its value has fallen by three-quarters against the US dollar benchmark in 2024, five years after Mnangagwa’s ruling Zanu-PF party brought back a local currency for the first time since hyperinflation in 2008 destroyed the original.
The Zimbabwe dollar traded at about Z$36,000 to the US dollar on the black market this week, according to tracker Zim Price Check, compared with an official rate of Z$26,000.
David Mnangagwa, the president’s son who was appointed Zimbabwe’s deputy finance minister last year, said the plunge had been worsened by “anxiety and anticipation” ahead of the new currency regime.
But analysts and economists said it reflected deeper problems, such as Mnangagwa’s government printing money to pay for spending. There is a widespread lack of trust in the currency from ordinary Zimbabweans who have seen purchasing power and savings wiped out by years of turmoil.
So many Zimbabweans prefer to keep their money at home that the practice has gained an affectionate nickname: “mattress banking”.
“We’ve had five currencies over the past 10 years,” said Masimba Manyanya, a former chief economist in the finance ministry. “It reflects confusion within government itself.”
Benson Gandiwa, who runs a grocery shop in the capital Harare, said he had not used the local currency in years and had no plans to change that. “My business is alive because I stick to the US dollar,” he said.
There are also doubts about whether the country has enough reserves to back a currency linked to the value of the country’s gold. In 2022, the government briefly experimented with minting 1-troy-ounce gold coins.
John Mushayavanhu, who was appointed Reserve Bank of Zimbabwe governor last month, said the bank has just over one tonne of gold in its own vaults and 1.5 tonnes held offshore. Zimbabwe’s government has a further $300mn kept in banks, the finance ministry said. South Africa, its larger neighbour, has about 125 tonnes of gold in reserve.
Zimbabwe’s foreign exchange reserves remain far below those of many African economies, equating to barely one month of import cover. In Kenya, which recently averted a looming currency crisis, the central bank’s reserves have recovered to more than $7bn, or 3.7 months of import cover.
“Zimbabwe has less than a month of reserves, not enough to defend the structured currency,” said economist Tinashe Murapata. “A new currency every five years now seems the norm.”
Zimbabwe cannot rebuild reserves without access to international markets and multilateral support, which has been cut off by decades of arrears to official lenders on much of its external debt. Mnangagwa made new overtures to end the financial isolation and clear the debt after taking power from Robert Mugabe in a 2017 coup.
But repeated bouts of repression by his security forces over the years have made the US and other governments less willing to engage.
This year the US suspended its involvement in a dialogue on the debt over the running of elections in 2023, which were widely seen as rigged in order to re-elect Mnangagwa to a second term.
Mnangagwa this week declared a state of disaster over a severe regional drought that has destroyed much of this year’s harvest, and said that more than $2bn would be needed to finance the emergency response.
Source: Economy - ft.com
