Chaos and Confusion as Zimbabwe Launches First Gold-Backed Currency

Chaos and Confusion as Zimbabwe Launches First Gold-Backed Currency
Zimbabwean President Emmerson Mnangagwa delivers a speech in Esigodini Matebeleland South, Zimbabwe, on Dec. 15, 2018. (Jekesai Njikizana/AFP/Getty Images)
Darren Taylor

JOHANNESBURG—On the streets of Harare, people are calling it “fool’s gold,” referring to Zimbabwe’s ZiG (Zimbabwe Gold) currency, officially launched on 8 April as the latest attempt by the ZANU-PF government to rescue its failed economy.

“Zimbabwe is a mafia state characterized by rampant inflation. It is effectively a laundromat for illicit gold smuggling, so it seems appropriate that its gangster government has adopted a version of the gold standard to bolster its imploding currency [the Zimbabwe dollar],” said Ed Stoddard, one of Southern Africa’s top financial writers.

“Zimbabweans are correct; the end result of the ZiG will probably look a lot like fool’s gold,” he told The Epoch Times.

It is looking “especially” like that, said the chairman of the Zimbabwe Crisis Coalition (ZCC), Peter Mutasa, because citizens don’t trust the new currency.

“Come here to Harare and you’ll hear bankers and business people saying, ‘We don’t believe in the ZiG.’

“Eighty percent of business in this country is in U.S. dollars because that’s the currency people want and trust,” he told The Epoch Times.

The ZCC is a group of more than 80 non-profits in the country, including organizations that focus on the nation’s finances.

Zimbabwe’s economy collapsed in the early 2000s when then-President Robert Mugabe sent “war veterans” to seize land owned by white farmers. Some were murdered; others fled the country.

The Mugabe regime then doled the land out to ruling ZANU-PF party officials and supporters.

The result was that agriculture, until then the mainstay of Zimbabwe’s economy, imploded, triggering food shortages and hyperinflation that persist to this day.

Harare first dumped the Zimbabwe dollar (ZD) in 2009, when the Central Bank’s printing presses were spitting out 100 trillion ZD notes—that’s 14 zeros.

For a decade, most trade was in U.S. dollars, sparking ZANU-PF’s foray into crime, according to Mr. Stoddard and many others.

“Dollarization breeds criminality because it provides a haven for money laundering and smuggling,” he said. “Dollarization enriched Zimbabwe’s corrupt elite.

“ZANU-PF is always venting its anti-imperialist and anti-Western ideas, but its Reds sure love to collect greenbacks.”

Zimbabwe Reserve Bank Governor John Mushayavanhu announced the launch by the central bank of the ZiG (Zimbabwe Gold) a "structured currency" in Harare, on April 5, 2024. (Jekesai Njikizana/AFP via Getty Images)
Zimbabwe Reserve Bank Governor John Mushayavanhu announced the launch by the central bank of the ZiG (Zimbabwe Gold) a "structured currency" in Harare, on April 5, 2024. (Jekesai Njikizana/AFP via Getty Images)

In 2019, the government put the Zimbabwe dollar (ZD) back in circulation. It began trading at an official exchange rate of 2.5 per U.S. dollar.

When the ZD was scrapped, again, on April 12, it was officially trading at 30,671 per U.S. dollar, having lost 80 percent of its value since the start of the year.

The ZiG is currently trading at around 13.5 to the U.S. dollar.

A positive start said Johannesburg-based independent economist Ulrich Joubert, but one that won’t endure.

“Bear in mind that five previous attempts to revive a local currency have failed,” he told The Epoch Times.

“They failed because the government simply printed money to fund the budget and I predict they’ll do that again.”

Mr. Joubert said this will happen because Zimbabweans, and “the whole world,” do not trust the ZiG.

“They’ve seen so-called magic bullets before, and they’ve watched and felt the pain as the value of their locally priced assets has crumbled and they couldn’t even afford bread,” he noted.

Mr. Mutasa said: “How can we have confidence in the ZiG when right now government officials are themselves still demanding we pay in U.S. dollars for passport services and at road tollgates?”

The governor of the Reserve Bank of Zimbabwe, John Mushayavanhu, told The Epoch Times that “hesitancy” around the ZiG is understandable.

“People are always slow to accept new things,” he said. “You can’t expect them to embrace a new currency overnight. But, eventually, things will settle down and the ZiG will be a success.

“It is, after all, anchored by gold, and there is no more trusted commodity in the world than gold.”

Mr. Mushayavanhu said the new currency would be supported by a “basket of cash and gold reserves” that last week were worth $185 million.

“This doesn’t seem like much, but bankers in Zimbabwe say it’s more than three times the cover required for the number of ZiGs needed to circulate,” said Mr. Joubert.

But Michael Samson, director of the Economic Policy Research Institute of Southern Africa, remains skeptical.

“The Zimbabwe government has always been unwilling to abandon inflationary finance,” he said. “So the ZiG is allegedly backed by gold; so what?

“Harare has proved in the past, time and again that it is willing to print fiat money at the drop of a hat, and that will destroy the soundest of financial plans.”

International finance website, Investopedia, defines fiat money as “a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.”

Lawrence Nyazema, president of the Bankers Association of Zimbabwe, told The Epoch Times that “only a small number” of the country’s 19 banks are processing ZiG electronic transactions.

“I expect more banks to come online this week and it will soon be all systems go for trading and other services using ZiG. But in reality, we need demand and supply from customers to really get going,” he said.

Justin Bgoni, chief executive officer of the Zimbabwe Stock Exchange, told The Epoch Times trading remains “very limited” in the wake of the switch to the ZiG.

“Most of the players are playing a wait-and-see game,” he said. “They’re also watching how banks will settle last week’s trades because those will be impacted by the currency switch.”

Stocks on the main exchange in Harare have risen more than three-fold since the start of the year.

“When we see stocks surge in Zimbabwe, we get worried,” said Mr. Bgoni. “It means a rise in inflation. Then investors look for hedges to protect the value of their money.”

According to the World Bank, inflation in Zimbabwe in March reached 55 percent, a seven-month high.

The Zimbabwe Dollar had one of its worst starts of the year since being brought back into circulation, plunging 40 percent on the street market in January. It then lost value every single trading day of the year.

“It was hard to make any sense of day-to-day transactions, with all the zeros,” said Mr. Mutasa, with a loaf of bread recently costing ZD35,000,000.

“Can you imagine what a flatscreen TV here costs?” he laughed. “You’ll have to hire a truck or a train if you want to pay cash.”

Mr. Mutasa said even the government doesn’t have confidence in the ZiG.

“That’s obvious because they keep emphasizing that the U.S. dollar will remain legal tender. It’s very ironic that President [Emmerson] Mnangagwa’s government is vociferously anti-American, yet it embraces the U.S. dollar while simultaneously toting the ZiG as the savior of our economy.”

The World Bank says Zimbabwe is one of the poorest nations on Earth.

Yet, it has vast gold reserves.

“Zimbabweans see little benefit from the gold wealth because it’s all under the control of ZANU-PF in collaboration with China, which owns a lot of Zimbabwe’s gold mines,” explained Mr. Joubert.

“The whole world knows that Zimbabwe’s basically a kleptocracy, which has spawned criminal activity on a grand scale,” he said.

“There’s plenty of very credible evidence that the ZANU-PF government is smuggling and laundering illicit gold, and is also involved in illegal trade in cigarettes and tobacco, together with high-ranking officials in South Africa.”

ZANU-PF spokesperson, Christopher Mutsvangwa, responded that these are “old allegations” that have “no substance.”

He told The Epoch Times: “No government official is involved in any crime whatsoever.

“To suggest otherwise is to become part of a Western-led campaign to encourage regime change in Zimbabwe because our main allies are South Africa, China, and Russia.”

But, in April 2023, an investigation by Al Jazeera news recorded several senior ZANU-PF officials boasting that gold trafficking is “easy,” and acknowledging that Mr. Mnangagwa (81) is aware of their schemes and is benefiting from them.

Al Jazeera said its investigation showed “multiple different gangs” using gold as their preferred method for laundering money, with three of them operating mainly from Zimbabwe.

“The process is as simple as it is cunning: Criminals from around the world with large volumes of unaccounted cash can give that money to the Zimbabwean government, directly or through smugglers,” said the report.

“Zimbabwe needs dollars because the country’s currency has lost its value in international trade due to hyperinflation.

“A commodity like gold is a good way to earn dollars, but international sanctions imposed on the country make it difficult for the government to export gold because of the additional scrutiny on officials in power.”

Washington first imposed sanctions on the ZANU-PF regime in 2003, accusing it of “undermining democracy,” principally by murdering, torturing, and jailing political opponents.

Mr. Mnangagwa, who was then the speaker of the Zimbabwean parliament, was among 76 high-ranking officials affected.

In Zimbabwe, he’s called “The Crocodile,” an animal that appears in local folklore for its stealth and ruthlessness.

Mr. Mnangagwa gained the moniker in the mid-1980s when he was in charge of ZANU-PF security forces.

That’s when Mr. Mugabe deployed a North Korean-trained brigade against supporters of his political rival, Joshua Nkomo, of the Ndebele tribe.

ZANU-PF is dominated by Zimbabweans from the Shona ethnic group.

Human rights groups say police and soldiers commanded by Mr. Mnangagwa killed 20,000 civilians, mostly Ndebele, in what has become known as the massacres of Gukurahundi, meaning “the early rain which washes away the chaff before the spring rains.”

His reputation was strengthened when, as vice president, he instigated a 2017 military coup that deposed Mr. Mugabe, who had been in power since independence in 1980.

Mr. Joubert said sanctions were the “main reason” for ZANU-PF turning to crime.

“Who knows where the gold reserves being used to support the ZiG have come from?” he asked.

In March, the U.S. government placed fresh sanctions on key ZANU-PF officials, including Mr. Mnangagwa, aimed at limiting their ability to conduct business.

According to Al Jazeera, criminals collaborating with the president and his regime are smuggling Zimbabwean gold to Dubai and then laundering the money and the precious metal.

“When the gold arrives in Dubai, it is sold to refineries, and the proceeds are banked for the money launderers. The refining process removes traces of the gold’s origin,” said the Al Jazeera report.

Mr. Mushayavanhu said Zimbabweans have until April 29 to exchange old, inflation-ravaged notes for the ZiG.

He added that companies will be required to pay at least half of their taxes in the ZiG, a measure aimed at boosting demand.