World Bank distances itself from Zimbabwe’s currency gamble

The World Bank has distanced itself from being the driving force behind Zimbabwe’s new currency, the Zimbabwe Gold (ZiG).

Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu had claimed that the World Bank was central to the ZiG initiative through consultancy, but the bank has clarified that it only offers policy advice to member states, which have the discretion to choose their own currency.

“We are committed to supporting the government of Zimbabwe in its efforts towards the country’s economic recovery,” the World Bank told the NewsHawks.

“This aligns with our goal to create a world free of poverty on a livable planet. This support includes technical expertise and in-depth research and analysis on sectors, such as the latest Zimbabwe Economic Update.

“It also includes perspectives on policy and development challenges at the request of clients. Governments tailor this advice to their contexts and ultimately make the final decisions on policy implementation in their countries.”

Mushayavanhu had initially stated that the World Bank was instrumental in the introduction of ZiG, which replaced bond notes and the RTGS. However, he has since backtracked, saying that the World Bank was not the architect of ZiG.

“We didn’t know much about structured currency. We got a consultant from the World Bank. A lot of the things you’re seeing about the structured currency actually came from the World Bank. So, if you’re going to blame me, you’re actually blaming the World Bank.

“Maybe they didn’t advise us properly. And if they did not advise us properly, it’s fine. Let’s refine it,” Mushayavanhu said.

The International Monetary Fund (IMF) has also clarified its role in the introduction of ZiG.

“The selection of a particular exchange rate regime is the prerogative of the country authorities,” an IMF communications officer said.

“The IMF’s role is primarily to advise on whether the country’s economic circumstances and its policy stance are consistent with the exchange rate regime that has been selected.

“In this context, we stand ready to advise the Zimbabwe’s authorities on policies to restore macroeconomic stability, but we need time to review the design and implications of the new currency arrangement.”

Economic analysts have raised doubts about the central bank’s claims that ZiG will be backed by bullion reserves.

Imara, an investment firm, has noted that the determination of ZiG’s price is unclear and may be subject to supply and demand factors rather than being pegged to gold reserves.

“The value of the ZiG on any given day will be determined by its supply and demand; it will not be based upon the gold price as it is not convertible into gold from what we can establish,” John Legat, the Imara Asset Management chief executive, wrote in a research note.

“We also doubt that the refined interbank foreign exchange market will be any different to the one we have had up to now; in short, it will likely be a controlled rate engineered by the RBZ rather than one set by the commercial banks.

“That implies that there will be a black market rate in ZiG just as there was in the ZWL, and that will be determined by supply and demand. Too much supply and the rate will devalue irrespective of the value of Zimbabwe’s foreign reserves or the gold price.”

Legat adds that the success of ZiG will ultimately depend on trust in the economic authorities, which has been lacking in the past.

“The general public and, importantly, foreign investors have close to zero trust in the Zimbabwean economic authorities for obvious reasons.

“It will therefore be up to the new Governor to work to rebuild that trust by showing that the ZiG performs as the label on its tin suggests it should.

“If it doesn’t and ZiG is created to fund roads, for example, or civil servants’ salaries, then the ZiG will go the same way as the ZWD and the ZWL, but rather faster,” Legat wrote.