HERE are some of the most asked questions and answers about the new Zimbabwe currency that was recently announced by the new Reserve Bank of Zimbabwe (RBZ) governor Dr John Mushayavanhu.
Question: What exactly is a “structured currency”? How will it be different from the current Zimbabwean dollar? What commodity will the structured currency be linked to? How will this link be established and maintained?
Answer: A structured currency is generally defined as a currency that is pegged to a specific exchange rate or currency basket and backed by a bundle of foreign exchange assets (potentially including Gold). This means that a Central Bank can only issue domestic notes and coins when fully backed by a foreign “reserve” currency or foreign exchange assets and that the currency is fully convertible into the reserve currency on demand. The structured currency is different from the ZW$ in that it is anchored by a composite basket of foreign currency and precious metals (mainly Gold) held as reserves for this purpose by the Reserve Bank.
Question: How will the structured currency be rolled out? What does this mean for the ordinary consumer and businesses?
Answer: With effect from 5 April 2024, banks shall convert the current Zimbabwe dollar balances into the new currency which shall be called Zimbabwe Gold (ZiG) to foster simplicity, certainty and predictability in monetary and financial affairs. The new currency will co-circulate with other foreign currencies in the economy. The swap rate will be guided by the closing interbank exchange rate and the price of Gold as at 5 April 2024.
The swap rate shall be used to make legitimate conversions of all ZW$ deposits in the banking sector; all ZW$ loans and advances made by the sector; ZW$ treasury bills; all outstanding auction allotments; all export surrender obligations; all prices of goods and services in ZW$; and any other ZW$ denominated obligations. The structured currency will bring price and exchange rate stability, benefiting consumers and businesses alike.
Question: Will the structured currency be used alongside the other legal tenders in Zimbabwe?
How will the central bank manage the co-circulation of the new structured currency with the US dollar in the dual currency regime?
Answer: The ZiG currency will be legal tender operating alongside other currencies prescribed in the RBZ Act under a multi-currency system, which includes the USD, Euro, Rand, Pound Sterling, Yen etc. It shall also be used for accounting and other purposes, including discharge of financial and contractual obligations as well as valuation of assets and liabilities.
Question: What is the anticipated impact of the structured currency on the economy? How will the structured currency impact inflation and price stability? How will the introduction of a new currency backed by gold reserves address the hyperinflation and currency depreciation issues that have plagued the economy?
Answer: The new structured currency is anticipated to restore confidence in the local currency and hence safeguard the multi-currency system, which, to date, has served the country very well. This will go a long way in fostering simplicity, credibility, certainty and predictability in monetary and financial affairs. The structured currency and the accompanying monetary policy measures will bring price and exchange rate stability in the economy.
Question: Will the money be recognised internationally?
Answer: ZiG is a local currency that has just been launched and has not yet achieved convertibility.
The Bank will work to strengthen the currency to attain full convertibility, consistent with the regional agenda for macro-economic convergence under the Sadc Protocol on Finance and Investment.
Question: Will consumers be able to purchase fuel using the structured currency?
The current pricing mechanism in the fuel sector will remain in place until otherwise reviewed. As Reserve Bank and Government work towards wider use of ZiG, the fuel sector will be encouraged to accept ZiG for fuel purchases. — (Source: RBZ, Questions on the Structured Currency APRIL 2024)
