Zimbabwe’s Central Bank Launches Gold-and Forex-Backed ‘Structured Currency’

The Reserve Bank of Zimbabwe has introduced a foreign exchange and gold-backed “structured currency” to replace the struggling local currency. The structured currency banknotes will be “fully convertible into the reserve currency on demand.” The central bank has also reduced the annual interest rate from 130% to 20%.

Structured Currency Supported by Solid Fundamentals

The Zimbabwean central bank has demonetized its struggling currency and replaced it with a structured currency backed by a basket of foreign exchange assets such as gold. According to the new Reserve Bank of Zimbabwe (RBZ) Governor, John Mushayavahu, the structured currency banknotes will be “fully convertible into the reserve currency on demand.”

In his inaugural monetary policy statement, Mushayavahu said the currency, known as ZIG, will be supported by the “strong macroeconomic fundamentals currently prevailing in the economy.” He identified the “persistent” surpluses in the balance of payments and a bullish mining sector as some of these fundamentals.

Despite the introduction of the new currency, the RBZ governor said the multiple currency regime will remain, and the ZIG banknotes will “co-circulate with other foreign currencies in the economy.” However, starting on April 5, local banks will convert current Zimbabwe dollar balances into the new currency. The balances will be converted at a rate that “will be guided by the closing interbank exchange rate and the day’s gold price.”

Central Bank Adjusts Interest Rate Policy

In the monetary policy statement, Mushayavanhu also provided a breakdown of the composite basket of reserves.

“ZIG shall at all times be anchored and fully backed by a composite basket of reserves comprising foreign currency and precious metals (mainly gold), received by the Reserve Bank as part of in-kind royalties and kept in the vaults of the Bank. Foreign currency balances will be accumulated through market purchases from the 25% surrender requirements as well as [the] sale of some precious metals received as royalties,” Mushayavanhu explained.

According to the statement, the RBZ had reserve assets of $100 million in cash and 2,522 kilograms of gold (valued at $185 million) to back the entire local currency component of reserve money. These reserves represent “more than three times the cover for the local currency being issued,” the RBZ said.

In addition to the introduction of the structured currency, the central bank also reduced the interest rate from 130% per annum to 20% per annum. Interest rates on savings and time deposits for ZiG deposits have been set at 9% and 7.5%, respectively, “below the bank deposit facility rate of 12.5%.” However, the RBZ said interest rates on Foreign Currency Accounts (FCA) deposits will “remain unchanged at 1% and 2.5% for savings and time deposits, respectively.”

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