In Southern Africa, a nation may have found a new solution to one of its long standing issues. Zimbabwe is replacing its battered dollar with a new unit. It's called the Zig. The sweeping move is Zimbabwe's six attempts to have a functional currency since two thousand and eight. So can this new currency really make a difference in a country with crippling inflation?
With the new currency being launched, the expectation by the central bank is that inflation is going to begin to four.
This week, I discussed with my colleague Ray and Lovu in Zimbabwe about the introduction of the new unit, its unexpected effect on the stock market, and I ask him if the Zig is really the solution to the country's year's long currency crisis. I'm Jennifer Zaba Saja. This is the Next Africa Podcast, bringing you one story each week
from the continent with the context only Bloomberg can provide. Hey, Ray, so you're in Harare, the capital of Zimbabwe, and we want to get your thoughts on the Zig, the country's new currency that's really been making headlines around the world. But before we do that, I want to first ask you about the previous iterations of the currencies that was being used in the country, and specifically the Zimbabwean dollar. It was one of the worst performing currencies in the
world until it was scrapped. So can you just take us back to the beginning of the story.
Thank you, Jen. So everything pretty much begins during the time of ipay inflation. That's back in two thousand and eight. Ipainflation rages too, recorded levels of over fifty billion ascent. The Zimbabwean dollar then is abandoned in favor of the US dollar. That's when the US dollar is introduced in February two thousand and nine. For ten years, the US dollar is used to be the transacting currency and then it's abandoned by again. This time the Years dollar is
abandoned in favor of the zimbabwe dollar. That doesn't last for long. By the time of COVID authorities, they ever rethink of the entire situation and they allow for a multi currency system. So that's basically now you know, the local currency being allowed to transact, to to be used side by side with the Years dollar.
And people were using the dollar for just about everything in life.
Yeah, dollars are useful, you're basic every day sort of like day to day transactions. If you're buying your airtime, buying food in the supermarket, fuel, paying for medicines, your rentals, your school fees, so pretty much what is the fabric of life.
So that was the status quo for a while, but it didn't stay that way for long.
Things really take a nasty turn for lack of a better term, at the start of the year, there's a lot of demand for foreign currency. It's usually a period when the foreign current the inflows in the country are very low, so there's not a lot of dollars coming through the formal channels, and a lot of companies and individuals moved to the black market in search of dollars.
And then this creates such a huge demand and the normal auction which officially supplies dollars, you know, is shut down for the Christmas holidays, so you have a high demand for dollars at the time and very little inflows
as well. And basically everything almost works against, as it were, against the zim dollar because a lot of people want access to dollars, there's not enough inflows and it starts plunging and you know, gen the zim dollar basically until its end on April five, had lost value every single trading day, so it's quite you know, a significant fall. I think it had lost almost about eighty percent of its value by the time it was retired.
What exactly the differences between the ZIG, the Zimbabwe Gold and the other iterations of Zimbabwe's currencies.
The main difference between the ZIG Zimbabwe Gold and other versions of past currencies that the country has had is that the ZIG is backed by gold. This is one of the key selling points that authorities have you been drumming up and making the public away that the currency is backed by gold, precious metals and about one hundred million dollars in foreign currency reserves. The Finance minister in an interview with US earlier this month, he indicated the following.
You know, most African countries and countries in major markets are facing trouble with currency.
Well not.
Everyone's trying to figure out how to stabilize their domestic currencies to maintain competitiveness. In Zimbabwe, we think we'll figured it out by making sure that our currency is linked to certain reserve assets, had assets. That's how we've constructed it.
The main thing, it's got gold bagged, it's got reserves. The previous versions of the currency were not backed by anything. There's nothing, you know, it was anchored on. So basically you had a printing press almost running a mock in terms of printing as much supply of the Zimbabwe dollar that you have. And now the commitment that has come around this time around is that they will not print any more ZIG than is available to be backed by
the gold reserves. So that should theoretically provide the stability that is eluded Zimbabwe for many years and the chaos that you've seen with other currencies before.
So, y, how has the ZIG performed thus far? I mean, are there any risks for the currency moving forward?
So the currency has gained just over two percent against the dollar since its introduction. It's obviously something quite significant because you know, it's previous iteration, this Zimbabwe dollar had been losing a value every single day of the year. Well, authorities pretty much see the main risk on top of deflation being the currency strengthening too much and that causing a loss of competitiveness for industries because of a strong currency.
And most recently the currency is surprisingly having some unintended impacts on the stock exchange.
Yeah, so the stock exchange is probably one very good indicator of what the impact of the new currency has been. First of all, you know, we spoke to trade as stock brokers and a few companies as well that have activities on the stock market. They've seen a muted activity over the last two weeks. So basically what this translates to is a fall in their incomes because they rely on fees and commissions from activity on the stock market.
So now because of the new currency, which is stable and there's been very very little activity and that translating intowards stock brokers, they've called a painful early way winter for them. So I think one of the people that we spoke to was talking about declines of as much as fifty percent in revenues among stockbrokers.
I feel like this is not something that the Central Bank governor, who was behind the creation of the ZIG or the Zimbabwe gold was expecting.
I think to an extent they expected this, perhaps not the effect because it does also affect government revenues because they do call it taxes as well from an activity on the stock market. But I think they expected the new currency, the ZIG buying large to provide some stability right across all economic sectors and the Finance Minister in
the early days of the new currency's launch. You know, he also hinderated that they could foresee some sort of stability setting into the stock market and particularly on the share prices.
As far as businesses go, the introduction of a new currency, I can only imagine it presents a few challenges or a number of the people involved. I mean, what is it that they're actually having to prepare for.
So with businesses, what the that to do is pretty much convert their systems from the old currency of the Zimbabwean dollar to the ZIG. So it's an activity that initially disrupted commerce because you know, they had to do this switchover. It doesn't you know, all done at the same time. Some banks were able to finish much quicker than others and others took much longer. So you had
some disruptions that took place to commerce and everyone. So like try to change over to ZEG from the Zimbabwin dollar.
After the break, we dig into the man behind the launch of the ZIG in Zimbabwe and what exactly he's trying to achieve for the country's economy. We'll be right back. Welcome back, all right, let's talk about the Central Bank, Ray because the central Bank governor has really been outspoken in terms of his support for the ZIG. Can you just talk to us about the governor and what exactly he's been saying.
So he's been very polish promoting the new currency. Since it's long he's been on several speaking engagements across the country to explain what the currency is all about and what he sees happening. So the governor has got his
work cut out in terms of convincing the population. And it's also been very vocal as well, you know, saying that the starting point is for them as a central bank to win back that confidence that they've lost over the past couple of years because of you know, the experiences of high pain inflation.
And what does he achieve with the introduction of this currency. I mean, obviously, if things go well, he can tell the fact that he was at the helm when the Zimbabwean currency actually succeeded. But is there something else that we're maybe missing here the governor.
We had to sit down interview with him recently and that's one of the first things that we posed to him to say, what is he trying to achieve with this new currency, and this is what he had to say. MY main priority is to make sure that I stabilize the currents in the next ninety three hundred days. So he's sticking to the mandate of the central Bank, which
is price stability and exchange rate stability. That's what he's setting out to do over the next one hundred days since his appointment on March twenty eight.
And that would require a lot of things to be put in place by authorities in order to get buy And I assume is there buy in at this point in time, and how did authorities actually go about rolling out this new unit.
So the authorities themselves, they are saying one of the things that they've agreed on is that they'll last companies to pay fifty percent of their quarterly taxes in Zeke as a way to promote demand. But that's been as far as the main sort of ask from them. So I think they need to do more if that demand for Zeke is going to really take a place within
the economy. What they've asked so far as the starting point, we'll see a lot of demand in June for payments of taxes by companies, and they the governor himself has also say that he expects the ZEK to strengthen even further around that time period.
And Ray, as we mentioned you're in Harara. I mean, what's been the reaction on the streets. Considering these are many people who have probably lived through the days of hyperinflation in Zimbabwe, how are they actually feeling about this?
The selling point about being gold backed really means nothing to a lot of people. People have lost before, savings, they've lost money before. So the feeling is here we go again. You know, whether it to work or not is really something that a lot of people are still holding out and not banking and believing, you know, it's going to work out. At the moment, the key issues the central bank has to win over the confidence of citizens.
And finally, Ray, we're still talking about a country that has inflation that is north of fifty percent. There's poverty, there's also unemployment. There are a number of economic issues that Zimbabwe is grappling with on a daily basis. If the ZIG actually succeeds, does it help resolve some of these issues.
With the new currency being launched, the expectation by the central Bank is that inflation is going to begin to fall. In fact, the Governor told us that he sees inflation anyway below five percent and that's on the back of inflation which in March was around fifty five percent, So the expectation is to bring it down to single digits by the end of this year as a result of the introduction of the Zeke the Zimbabwe Gold.
Ray thanks again so much for your time, and as Ray said, it may be too early to tell whether the Zimbabwe goal will actually be deemed a success for
the country. Zimbabwe has been relying on the US dollars since two thousand and nine, back to the time of hyperinflation, and as mentioned, it now accounts for eighty percent of all transactions in the economy, so key to adoption and as the Deputy President says, eventually dedollarization may be the zig being more widely accepted for your basic needs, so that Zimbabweans can actually feel the benefit of a currency.
And you can hear more stories like this one on the Next Africa podcast, available every week, and don't forget to subscribe, rate and review this podcast. We'll be back next week.