Zimbabwe launches new gold-backed currency

Zimbabwe's central bank launched a new "structured currency" backed by gold on Friday, as it seeks to tackle sky-high inflation and stabilise the country's long-floundering economy.

The ZiG -- short for Zimbabwe Gold -- will replace the Zimbabwean dollar which has tumbled in value over the past year, pushing inflation through the roof, Reserve Bank governor John Mushayavanhu said.

"With effect from today… banks shall convert the current Zimbabwe dollar balances into the new currency," he said, presenting a monetary policy statement.

The ZiG will be "fully anchored and fully backed" by a basket of reserves comprising foreign currency and precious metals -- mainly gold, he added.

The move is aimed at fostering "simplicity, certainty, (and) predictability" in Zimbabwe's financial affairs, he added, presenting the new banknotes that come in eight denominations ranging from 1 to 200 ZiG.

The Zimbabwean dollar has lost almost 100 percent of its value against the US greenback over the past year.

On Friday, it was officially trading at around 30,000 against its more coveted US counterpart -- and at 40,000 on the black market, according to tracker Zim Price Check.

Its poor performance contributed to the southern African country's high inflation rate, which after climbing well into the triple digits last year, was at 55 percent in March, according to official data.

This has piled pressure on its 16 million people who are already contending with widespread poverty, high unemployment and a severe drought induced by the El Nino weather pattern.

Zimbabweans have 21 days to convert their old cash into new money, Mushayavanhu said.

  More gold needed? 

 The new banknotes feature a drawing of gold ingots being minted as well as Zimbabwe's famous Balancing Rocks, which already appeared on the old ones.

Zimbabwe boasts vast gold deposits, with the precious metal accounting for almost 25 percent of all exports in January, according to official data.

But analysts have questioned whether Harare has enough reserves to adequately back the currency, and if the latter could suffer from volatility in gold prices.

On Thursday, President Emmerson Mnangagwa inspected the central bank's vaults that Mushayavanhu -- who was appointed earlier this year -- said hold 1.1 tonnes of solid gold.

The bank also keeps other precious minerals such as diamonds that if converted into gold would account for another 0.4 tonnes, he added.

"We need more," said economist Prosper Chitambara, saying that other countries such as neighboring South Africa had much larger reserves.

"The more the reserves, obviously, the more the confidence and the more your capacity to be able to defend your currency against any shocks."

Reining in inflation also requires other reforms and for the government to curb public spending and limit money printing, he said.

Soaring prices have brought back memories of 2008, when hyperinflation was so out of control that the central bank even issued a 100-trillion-dollar note -- now a collectors' item.

The government was eventually forced to ditch the local currency and adopt the US dollar as legal tender.

The Zimbabwean dollar was revived in 2019, but it has suffered from much the same problems as its previous incarnation.

Most Zimbabweans prefer to do business, get paid, and hold their savings in US dollars.

Many who earn a salary in local money rush to currency exchange shops on payday.

The government has previously resorted to various expedients to stabilize the economy, including issuing gold coins and launching a gold-backed digital currency but they have yielded little results.