ZiG's false promise: Debunking the gold-backed myth

Some of us said it from day one, but we were accused of being 'prophets of doom'.

When the Zimbabwe authorities declared war on illegal money changers, ostensibly, in order to 'defend' the stability of the newly-introduced Zimbabwe Gold (ZiG or ZWG) currency, it was clear something was amiss.

If the ZiG was genuinely gold-backed, as the government of Zimbabwe alleged, then why fear the so-called 'black market'?

Did the Reserve Bank of Zimbabwe (RBZ) and the ruling establishment no boast that this time around the new currency was so powerful, as it was pegged to gold reserves, that it was nearly impossible for it to lose value?

In fact, did we not see music videos on the state-controlled broadcaster, Zimbabwe Broadcasting Corporation (ZBC), touting these supposed superpowers the ZiG possessed?

I also distinctly recall a video that went viral on social media showing  a ruling ZANU PF official at a gathering of the Apostolic sect (Mapositori), staging a little play (drama).

There were some 'Mapositori' dresses in their white religious garments being instructed on how to play their respective roles in a play meant to show what it meant that the ZiG was backed by gold.

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There was a character who portrayed 'the ZiG', and another representing 'sanctions'.

When 'ZiG' was instructed by the ZANU PF official to approach 'sanctions', he was overpowered.

However, the official called upon three heavily-built men ('monya', as they are referred to in Zimbabwe) to come to the defense of 'ZiG'.

These three 'monya' were supposed to be gold, other precious metals, and foreign currency reserves, all alleged to be backing the new Zimbabwe currency.

With the backing of these three 'tough guys', 'ZiG' was able to stand his ground against 'sanctions', and prevail.

This little drama perfectly summed up the narrative that had been peddled by Zimbabwe authorities since the introduction of the ZiG on 5th April 2024.

This new currency was said to be directly pegged to gold and backed by reserves of gold, other precious metals, and foreign currency stored at the RBZ.

The nation was even shown President Emmerson Dambudzo Mnangagwa inspecting these gold reserves at RBZ vaults in the capital Harare.

We were all assured that, this time around, nothing would stand in the way of the ZiG's stability.

This move was packaged as a masterstroke of genius and a game changer.

Well, barely five months later, and the 'gold-backed' ZiG was screaming for help!

Not only had it fallen, in spectacular fashion, on the parallel market, from the initial ZWG13,56 to over ZWG50 to the greenback, but it has also lost significant value on the official market.

This was after the RBZ had devalued the currency by 43%, from 13.99 to 24.39 to the US dollar.

All this happened as the price of gold was actually increasing on the global market.

On 30th June 2024, the price of gold stood at US$2324.98 per ounce.

On 1st September 2024, it had risen to US$2,502.77 and then on 24th September gone up again to US$2,658.08 per ounce.

As a matter of fact, today, gold is trading at US$2,659.54 per ounce.

So, why is our own ZiG losing value whilst the price of gold is actually increasing if the local currency is backed by gold?

Firstly, it is essential that we all understand what this term truly means.

A gold-backed currency is a monetary system where a country's currency value is directly linked to gold reserves.

This means that the currency's value is pegged to the value of gold, and each unit can be exchanged for a corresponding amount of gold.

The gold standard, as it is often called, provides price stability, low inflation, and facilitates international trade.

A key characteristic of a gold-backed currency is that it has a fixed exchange rate whose value is fixed relative to gold.

A portion of the currency in circulation is backed by gold reserves, and the currency can be exchanged for gold at a fixed rate.

Unfortunately, the ZiG does not quite fit the bill, despite initial claims by Zimbabwe authorities.

That is why finance minister Mthuli Ncube had to make an embarrassing about-turn when questioned as to why the ZiG was actually losing value yet gold price going up.

In his laughable and pathetic attempt at saving face after the government had been caught in a boldfaced lie, he tried to twist the meaning of the term 'gold-backed'.

His version of 'gold-backed' was, to quote him literally, “There was gold at the back of our currency!”

How ridiculous can one get, especially coming from a professor of finance!

He revealed that the ZiG's value is not really pegged to gold, nor is it directly linked to gold reserves.

Instead, the gold and foreign currency reserves will be sold to increase the US dollar supply in the market.

This, as can clearly be seen, does not align with the principles of a gold-backed currency.

While the concept of gold-backed currencies offers stability and predictability, Zimbabwe's ZiG falls short of meeting these standards.

In other words, the ZiG is not backed by gold.

No wonder its value is falling like a tonne of bricks!

The Zimbabwe government and RBZ were lying through the skin of their teeth.

Such unashamed lies are what worsen the economic situation in the country as this further erodes public trust in both the authorities and the local currency.

This is the main reason whatever currency is introduced by the government is rejected by the ordinary citizenry, leading to its loss of value.

This is also why the so-called 'black market' will always thrive in Zimbabwe, as Zimbabweans offload the undesired local currency for the more preferable and stable US dollar.

It has absolutely nothing to do with saboteurs, detractors, speculators, or even sanctions.

As a matter of fact, the greatest saboteur of the Zimbabwean economy and its currency is the Mnangagwa administration itself.

Stop lying to the people of Zimbabwe and address the real issues bedevilling our economy.

We need to see a genuine crackdown on corruption and the implementation of sound economic policies that actually stimulate the growth of our manufacturing and exporting sectors.

Everything else, as today's youth day, 'yatongove drama'!

© Tendai Ruben Mbofana is a social justice advocate and writer. Please feel free to WhatsApp or Call: +263715667700 | +263782283975, or email: mbofana.tendairuben73@gmail.com, or visit website: https://mbofanatendairuben.news.blog/