Zimbabwe’s Justice Legal and Parliamentary Affairs Minister Ziyambi Ziyambi has admitted that citizens are struggling to trust the Zimbabwe Gold (ZiG) which has lost much of its value since its introduction in April.
The gold-backed currency has lost significant value since its introduction, currently trading at ZiG25.2 on the interbank market and around ZiG43 on the parallel market.
According to Ziyambi, Zimbabwe’s main issue is a lack of confidence in the local currency, which is causing speculation and devaluing the ZiG.
The Minister explained that when the ZiG was introduced, it was backed by gold currency, and with around ZiG10.6 billion in circulation and US$430 million in reserves, the exchange rate should not be above ZiG25.
However, due to lack of confidence, people are speculating and preferring to hold onto US dollars, even if it means buying them at a higher rate.
“The issue that we suffer from as a country is largely a question of confidence,” Ziyambi said while speaking to the Senate on Thursday last week.
“Our people do not have confidence in our currency and there is a lot of speculation. Why do I say so?
“This is because when we introduced the ZiG, we backed it up with gold currency and currently in circulation, we have around ZiG10.6 billion and we have in our reserves around US$430 million.
“If you do the mathematics, the rate should not be above ZiG25. In fact, when we did the mathematics and we said suppose we want to buy all the ZiG that is in circulation with US$430 million, what rate will we get it for?
“We found out that it was around ZiG23, yet you find that because of the confidence, people would then speculate and say I would rather have it as a store of value and keep my USD even if I buy it at ZiG30.
“The inflation that you are talking about, you will not find it in any economic books. It is Zimbabwean inflation caused by lack of confidence, which is what we need to do to build confidence.
“Mr. President Sir, I will give you a scenario that happened in this country. In 2009 when we dollarised, this country did not have any money but because of the confidence and this belief that the GNU was a saviour, people survived and there was no inflation because of that.
“Now when we have some reserves because of this lack of confidence, we find our dollar fluctuating but what I can say is, we are doing all the efforts to bring back the confidence to ensure that we increase our reserves so that we can put measures to ensure that we mitigate this exchange loss that is happening because of speculation.”
He added that bringing back confidence would kill the inflation which is ravaging the economy.
“We believe that it is this panic in the population that we need to cure to say that when you have your money, your ZiG, you must be satisfied and have confidence.
“Once all of us have confidence in our currency, then that inflation that you have been talking about that is Zimbabwean made that you will not find in economic books will go away,” he said.
In September, the central bank devalued the ZiG by 43%. The move weakened the official exchange rate from 13.9 ZiG per US dollar to 24.4 ZiG per US dollar.
Zimbabwe’s bankers recently warned the central bank about the impact of any future shocks to the local currency, aiming to prevent erosion of people’s incomes and public confidence after the devaluation.
The Bankers Association of Zimbabwe (BAZ) president, Lawrence Nyazema, had emphasized that big shocks would result in losses for some individuals, and it would be better to have smaller, more gradual changes in the rate going forward.
“Every time you have such big shocks there are people who will lose out. The proper thing is to avoid significant huge shocks and maybe have small movement in the rate going forward,” Nyazema told Reuters.
The introduction of the ZiG marked Zimbabwe’s sixth attempt at a stable currency in 15 years.
how do we have confidence on a currency that is unwanted by the owners (gvt). Government claims to have confidence in it whilst taxes are being paid in usd. its ubsurd really.
ZiZi doesn't get his own 2009 example.
Like he said, people had confidence in the GNU, not the currency.
Same with now, people do not have confidence in the present government.
Change it, you'll see the ZiG firming.
Why stammering to get an answer to own question ZZ