By Kundayi Chinyongo, Nigel Pfunde and Nyasha Chuma
Every patriotic Zimbabwean desires a functional currency that serves as a reliable medium of exchange, store of value and unit of account. Given Zimbabwe’s economic challenges, it is crucial to rethink, reimagine and restructure the Zimbabwe Gold (ZWG) currency.
Alternatively, a different currency approach may be necessary. Whatever option is pursued, it must prioritize the protection of Zimbabwe’s populace, who should not continue to bear the brunt of continuous currency experiments that have failed to stabilize the economy.
The attempt to anchor the Zimbabwe Gold currency (ZWG) to gold has not achieved its intended outcomes, largely due to weak policy implementation and poor fiscal discipline. Without urgent reforms in treasury ,governance and money supply management, gold alone cannot sustain a currency.
A comparison with Russia’s experience offers valuable lessons that a gold-backed currency needs more than just reserves, it requires a strong policy framework and effective governance to succeed. Russia’s success has not been solely due to gold reserves, it has also stemmed from strong treasury management, strategic geopolitical moves and sound market decisions.
Zimbabwe needs to make geopolitical moves to resuscitate the ZWG based on the fact that we are the third world largest producer of platinum group minerals after South Africa and Russia, possessing significant lithium and chrome reserves.
We can leverage these resources to create demand for the ZWG. Much like how Russia managed its currency crisis, Zimbabwe could mandate that any entity seeking access to its mineral wealth must transact in the ZWG.
What Zimbabwe needs are policies that ensure the ZWG works effectively. At this critical juncture, stakeholders must acknowledge that the country cannot continue using its citizens as test subjects for cyclical currency failures.
The ZWG must work and with the right policies it can become a top performing currency globally.
For the ZWG to work as a viable currency it must address deep seated historical and structural issues, especially the lack of Trust in Zimbabwe’s financial system.
The lack of trust has resulted in an informal economy that holds billions of U.S. dollars, with many individuals opting to keep their cash at home rather than entrust it to banks. We also have a financial system were Remittances from abroad, which have accumulated over the years, flow directly into the pockets of recipients, by-passing formal banking channels and adding to the vast supply of USD in circulation. This has resulted in a scenario where the informal market holds more cash than the Central Bank’s reserves, underscoring the overwhelming prevalence of the USD over the ZWG.
Worse in a multi-currency system, the ZWG struggles to function as a true alternative to the USD, which remains the preferred currency for both consumers and businesses. The limited trust in the ZWG is due to its instability, limited functionality and inflationary pressures further diminishes its role in the economy.
Moreover, with the USD offering greater price stability and international recognition, makes the efforts to promote the ZWG as a primary and base currency face significant obstacles. This imbalance perpetuates a dependency on foreign currencies, complicating efforts to stabilize the national economy.
It’s worth noting that the ZWG has failed to meet expectations. As of June, the money supply had increased by 34%, with reserve deposits rising by approximately 100%. This uncontrolled expansion mirrors the errors of the past, particularly the hyperinflation crisis driven by unchecked money printing. The supposed gold backing for the ZWG has been rendered ineffective by these monetary missteps, making it resemble the previously unstable ZWL rather than a reliable, gold-anchored currency.
The question remains, can Zimbabwe reverse these pitfalls and develop a currency that acts as a financial buffer, stabilizes inflation and restores confidence in the monetary system?
At present, Zimbabwe does not need another currency experiment but rather a comprehensive set of policies aimed at promoting short term and immediate de-dollarization. The focus should be on progressively dedollarising key markets within the Zimbabwean economy, with clear timelines to ensure a gradual transition.
The fuel market is a critical sector that should be targeted for dedollarisation, alongside government taxes and rates, which must also shift to local currency. The transport sector should follow suite, as it plays a pivotal role in day-to-day economic activities. Additionally, sectors like agriculture, retail, and telecommunications can be gradually dedollarised.
This approach, if properly managed, will help restore confidence in the ZWG while reducing reliance on foreign currencies. A clear example of this challenge is Mbare Musika, one of Zimbabwe’s most dollarised markets, where the majority of cash transactions are conducted in USD.
For Zimbabwe to successfully transition away from dollarisation, it must create strong incentives for the use of the ZWG. This shift requires the banking sector to develop innovative financial products specifically tailored to the ZWG, thereby making it more attractive and functional for everyday transactions. In addition, these markets must transition from being cash-based to cashless, which can be achieved through the adoption of digital payment systems.
The arrival of Starlink offers a unique opportunity to drive serious digital transformation in these largely unbanked sectors, fostering the use of fintech solutions. The digitalization of such markets would not only streamline transactions but also improve revenue collection, enhance transparency and provide critical financial data.
This data could be harnessed to develop predictive models, which in turn could inform better economic decisions and policies which can ultimately improve the overall performance of the Zimbabwean economy.
For Zimbabwe to move forward, significant reforms in economic governance are required. The role of the Reserve Bank of Zimbabwe (RBZ) must be reconsidered. Delegating monetary control to an independent Currency Board could help alleviate the inflationary pressures that have long plagued the economy. Retaining regulatory powers within the RBZ while outsourcing monetary management would limit the influence of political populism on fiscal policy.
- John Mushayavanhu
The government must also commit to reducing bureaucracy and ensuring that the economy operates according to market principles. It’s also important to note that the Treasury has historically contributed to inflation by increasing money supply beyond optimal levels.
Currency values should be market driven and any government spending above its means should immediately be reflected in the money supply to prevent hidden inflationary pressures.
The current oversight structure is cumbersome, leading to reckless spending. There is an urgent need for structural modifications in treasury management to prevent further inflation and ensure that inflationary risks are identified and addressed early.
It is not too late for Zimbabwe to reset its economic path. The government must rethink the introduction of the ZWG, reconstruct fiscal policies and adopt diversified approaches to economic management.
By addressing the key issues of trust, fiscal discipline and governance, Zimbabwe can restore confidence in its currency and work towards long-term economic stability. If the right policies are implemented promptly Zimbabwe has the opportunity to emerge from its economic crisis stronger and more resilient.
