Zimbabweans are hit by the cost of changing to new currency

On April 5, Zimbabwe’s central bank announced a new gold-backed currency, immediately implementing changes on digital platforms with local banks converting the current currency, the Zimbabwean Dollar (ZWL) to Zimbabwean Gold (ZiG) amounts on their systems.

The new bank notes will become available only at the end of the month after the central bank’s governor put in place a grace period to enable the transition. In the meantime, the central bank made assurances that bond notes would still be in use.

Despite this, many businesses have already ceased trading in ZWL, significantly impacting millions who depend on cash for their daily needs, including people working in the informal economy.

The ZiG will replace the old currency

The ZiG is set to replace both existing ZWL bond notes and the Zimbabwean dollar, launched in 2016 and 2019, respectively.

Zimbabwe has been struggling with its currency for more than a decade. The ZiG is the country’s sixth attempt to launch a new one since 2008 when the rate of inflation reached 79.6 billion% per month before soaring to an unprecedented level of 89.7 zillion% by November that year, according to the International Monetary Fund.

The decision to move to the ZiG was an attempt to tackle inflation and also foster simplicity, certainty and predictability in Zimbabwe’s financial affairs.

Although it was promised that the old notes would remain valid for use this month, they were being rejected by government entities as well as private and informal sectors, thereby placing individuals in a problematic situation.

People were also unable to use online platforms to pay for telecommunications and electricity services in the immediate wake of the changeover while some banking services temporarily went offline from April 5 to 8, local media reported. This also affected US dollar transactions.

There were reports of transport becoming now more expensive, with operators taking advantage of the situation.

The new ZiG was launched, but it can’t be used

Economists say all these efforts by the government to change currencies are in search of stability of a freefall economy. But without the government itself committed to the use of the local currency, ZiG will fail.

The central bank plans to organise campaigns to educate people about the new currency and its security features. However, many people, especially those far from urban centres, are concerned. Many lost their savings several times, due to changes in the currency rather than other economic factors.

When in 2016 the central bank introduced the ZWL as legal tender, it set the bank rate 1:1 to the US dollar and assured the nation that the value would be equivalent. So people left money in their bank accounts only to realise the local currency was depreciating. Just a few months into the ZWL, millions had lost the value of their savings. Again in 2019 when the Zimbabwe dollar was launched during runaway inflation, Zimbabwe faced another bleak period when foreign currencies, including the US dollar, were banned until 2020.

The shops are not accepting the new currency, and when people are buying food, stores have no change.

The Reserve Bank has assured the nation that the ZiG is backed by gold and is strong compared with the ZWL. But people vividly remember the hope and eventual disappointment of prior currency swaps.

ZiG was launched to curb inflation

Economists said the 2016 launch of the bond notes was not informed by economic fundamentals and lack of political will in enforcing the use of that currency resulted in it failing and depreciating. The rationale behind the launch of the ZiG this year is mainly to curb inflation and introduce a medium of exchange stable enough to facilitate domestic and foreign trade.

While the initiative was advantageous to a certain extent, the economists say the ZiG is not being launched in the right context because there are fundamental issues that need to be addressed within the financial sector for it to succeed, like addressing consumer confidence.