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Failed Start - Zim's Search for Economic Footing?

Zimbabwe, a nation grappling with a legacy of economic turmoil, has introduced a new currency – the Zimbabwe Gold (ZiG). This latest attempt to curb inflation and volatility is backed by gold reserves, aiming to succeed where a string of previous currencies have failed.

Wilson Waison and Panashe Makufa

The ZiG enters this fraught landscape, announced alongside a delay in monetary policy decisions. It will trade alongside existing currencies, initially at 13.56 to the US dollar, with daily rates determined by the interbank market.

"We have a history of currency failures, and it remains to be seen if this latest solution will truly address our economic challenges," says political scientist Collen Gaga.

Zimbabwe's economic struggles are deeply rooted. The late 1990s saw the local currency lose value after the government printed excessive money to fund the Congo War and compensate war veterans. 

The early 2000s brought the land crisis, crippling the agricultural sector – once the economy's backbone.

Years of hyperinflation ensued, with the Zimbabwean dollar redenominated multiple times. By 2009, its use was abandoned.  In 2016, amidst a cash crisis, the government introduced bond notes, which quickly lost value.

Economists however express cautious optimism about the ZiG's potential due to its gold backing.

"The ZiG's structure, combined with the previously introduced digital token, gives it a fighting chance," explains Kudzai Mutisi, "It addresses some of the core issues that undermined past currencies."

The Reserve Bank Governor, John Mushayavanhu, expresses optimism about the new currency, hoping for its widespread adoption. "ZiG is a stable currency, easily convertible to its gold backing," he states, "I see no reason why Zambia wouldn't accept it."

Economist Professor Gift Mugano counters this view "We're repeating the same mistakes that led to past crises.

To truly address our financial woes, we need increased production and a way to manage the vast informal sector."

He emphasizes the informal economy's disregard for official policies "How can you influence change when a huge sector follows its own rules, prioritizing profit over stability?"

The shortage of small denominations compounds the problem. "The poor are being overcharged and forced into impulse buying," warns a concerned citizen.

The Reserve Bank's three-week delay in circulating ZiG notes leaves a dangerous vacuum. "If the US dollar fills the gap, it could undermine the ZiG's value right from the start," a market observer notes.

These developments raise questions "Was the ZiG announcement rushed? Should they have waited until the notes were ready? How will the market react?"  Only time will reveal whether the ZiG signifies a turning point or a familiar path to economic crisis.

Zimbabwe's troubled past casts a long shadow, and previous attempts to stabilize the economy, like introducing gold coins, which was met with limited success.


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