Zimbabwe launches gold-backed currency

In an effort to tackle the free-fall of its currency, Zimbabwe is set to launch a new gold-backed currency called Zimbabwe Gold, or ZIG. The currency is expected to be introduced at a rate of 13.56 to the US dollar with a 20% backing in gold reserves. This marks the sixth attempt by the country to stabilize its currency, which has depreciated by a staggering 80% against the US dollar this year, positioning it as the worst-performing currency of the year. Batanai Matsika, a Corporate Finance Specialist at SwitzView Wealth Management, sheds light on the implications and challenges of this bold move. The main objective of introducing ZIG is to instill confidence in the Zimbabwean economy by backing the currency with a tangible asset like gold. This move is an attempt to revive trust in the local currency and shift away from a predominantly US dollar-based economy. However, the success of ZIG will depend heavily on how effectively authorities can inspire trust and commitment from both local economic agents and international investors. With the Zimbabwean economy facing various structural challenges such as high debt levels, governance issues, and limited access to capital, the road ahead is filled with obstacles. The government will need to address these underlying problems to truly establish ZIG as a viable and trusted currency in the long run.