Speaker 1: In Southern Africa, a nation may have found a new
Speaker 1: solution to one of its long standing issues. Zimbabwe is
Speaker 1: replacing its battered dollar with a new unit. It's called
Speaker 1: the Zig. The sweeping move is Zimbabwe's six attempts to
Speaker 1: have a functional currency since two thousand and eight. So
Speaker 1: can this new currency really make a difference in a
Speaker 1: country with crippling inflation?
Speaker 2: With the new currency being launched, the expectation by the
Speaker 2: central bank is that inflation is going to begin to four.
Speaker 1: This week, I discussed with my colleague Ray and Lovu
Speaker 1: in Zimbabwe about the introduction of the new unit, its
Speaker 1: unexpected effect on the stock market, and I ask him
Speaker 1: if the Zig is really the solution to the country's
Speaker 1: year's long currency crisis. I'm Jennifer Zaba Saja. This is
Speaker 1: the Next Africa Podcast, bringing you one story each week
Speaker 1: from the continent with the context only Bloomberg can provide. Hey, Ray,
Speaker 1: so you're in Harare, the capital of Zimbabwe, and we
Speaker 1: want to get your thoughts on the Zig, the country's
Speaker 1: new currency that's really been making headlines around the world.
Speaker 1: But before we do that, I want to first ask
Speaker 1: you about the previous iterations of the currencies that was
Speaker 1: being used in the country, and specifically the Zimbabwean dollar.
Speaker 1: It was one of the worst performing currencies in the
Speaker 1: world until it was scrapped. So can you just take
Speaker 1: us back to the beginning of the story.
Speaker 2: Thank you, Jen. So everything pretty much begins during the
Speaker 2: time of ipay inflation. That's back in two thousand and eight.
Speaker 2: Ipainflation rages too, recorded levels of over fifty billion ascent.
Speaker 2: The Zimbabwean dollar then is abandoned in favor of the
Speaker 2: US dollar. That's when the US dollar is introduced in
Speaker 2: February two thousand and nine. For ten years, the US
Speaker 2: dollar is used to be the transacting currency and then
Speaker 2: it's abandoned by again. This time the Years dollar is
Speaker 2: abandoned in favor of the zimbabwe dollar. That doesn't last
Speaker 2: for long. By the time of COVID authorities, they ever
Speaker 2: rethink of the entire situation and they allow for a
Speaker 2: multi currency system. So that's basically now you know, the
Speaker 2: local currency being allowed to transact, to to be used
Speaker 2: side by side with the Years dollar.
Speaker 1: And people were using the dollar for just about everything
Speaker 1: in life.
Speaker 2: Yeah, dollars are useful, you're basic every day sort of
Speaker 2: like day to day transactions. If you're buying your airtime,
Speaker 2: buying food in the supermarket, fuel, paying for medicines, your rentals,
Speaker 2: your school fees, so pretty much what is the fabric
Speaker 2: of life.
Speaker 1: So that was the status quo for a while, but
Speaker 1: it didn't stay that way for long.
Speaker 2: Things really take a nasty turn for lack of a
Speaker 2: better term, at the start of the year, there's a
Speaker 2: lot of demand for foreign currency. It's usually a period
Speaker 2: when the foreign current the inflows in the country are
Speaker 2: very low, so there's not a lot of dollars coming
Speaker 2: through the formal channels, and a lot of companies and
Speaker 2: individuals moved to the black market in search of dollars.
Speaker 2: And then this creates such a huge demand and the
Speaker 2: normal auction which officially supplies dollars, you know, is shut
Speaker 2: down for the Christmas holidays, so you have a high
Speaker 2: demand for dollars at the time and very little inflows
Speaker 2: as well. And basically everything almost works against, as it were,
Speaker 2: against the zim dollar because a lot of people want
Speaker 2: access to dollars, there's not enough inflows and it starts
Speaker 2: plunging and you know, gen the zim dollar basically until
Speaker 2: its end on April five, had lost value every single
Speaker 2: trading day, so it's quite you know, a significant fall.
Speaker 2: I think it had lost almost about eighty percent of
Speaker 2: its value by the time it was retired.
Speaker 1: What exactly the differences between the ZIG, the Zimbabwe Gold
Speaker 1: and the other iterations of Zimbabwe's currencies.
Speaker 2: The main difference between the ZIG Zimbabwe Gold and other
Speaker 2: versions of past currencies that the country has had is
Speaker 2: that the ZIG is backed by gold. This is one
Speaker 2: of the key selling points that authorities have you been
Speaker 2: drumming up and making the public away that the currency
Speaker 2: is backed by gold, precious metals and about one hundred
Speaker 2: million dollars in foreign currency reserves. The Finance minister in
Speaker 2: an interview with US earlier this month, he indicated the following.
Speaker 3: You know, most African countries and countries in major markets
Speaker 3: are facing trouble with currency.
Speaker 2: Well not.
Speaker 3: Everyone's trying to figure out how to stabilize their domestic
Speaker 3: currencies to maintain competitiveness. In Zimbabwe, we think we'll figured
Speaker 3: it out by making sure that our currency is linked
Speaker 3: to certain reserve assets, had assets. That's how we've constructed it.
Speaker 2: The main thing, it's got gold bagged, it's got reserves.
Speaker 2: The previous versions of the currency were not backed by anything.
Speaker 2: There's nothing, you know, it was anchored on. So basically
Speaker 2: you had a printing press almost running a mock in
Speaker 2: terms of printing as much supply of the Zimbabwe dollar
Speaker 2: that you have. And now the commitment that has come
Speaker 2: around this time around is that they will not print
Speaker 2: any more ZIG than is available to be backed by
Speaker 2: the gold reserves. So that should theoretically provide the stability
Speaker 2: that is eluded Zimbabwe for many years and the chaos
Speaker 2: that you've seen with other currencies before.
Speaker 1: So, y, how has the ZIG performed thus far? I mean,
Speaker 1: are there any risks for the currency moving forward?
Speaker 2: So the currency has gained just over two percent against
Speaker 2: the dollar since its introduction. It's obviously something quite significant
Speaker 2: because you know, it's previous iteration, this Zimbabwe dollar had
Speaker 2: been losing a value every single day of the year. Well,
Speaker 2: authorities pretty much see the main risk on top of
Speaker 2: deflation being the currency strengthening too much and that causing
Speaker 2: a loss of competitiveness for industries because of a strong currency.
Speaker 1: And most recently the currency is surprisingly having some unintended
Speaker 1: impacts on the stock exchange.
Speaker 2: Yeah, so the stock exchange is probably one very good
Speaker 2: indicator of what the impact of the new currency has been.
Speaker 2: First of all, you know, we spoke to trade as
Speaker 2: stock brokers and a few companies as well that have
Speaker 2: activities on the stock market. They've seen a muted activity
Speaker 2: over the last two weeks. So basically what this translates
Speaker 2: to is a fall in their incomes because they rely
Speaker 2: on fees and commissions from activity on the stock market.
Speaker 2: So now because of the new currency, which is stable
Speaker 2: and there's been very very little activity and that translating
Speaker 2: intowards stock brokers, they've called a painful early way winter
Speaker 2: for them. So I think one of the people that
Speaker 2: we spoke to was talking about declines of as much
Speaker 2: as fifty percent in revenues among stockbrokers.
Speaker 1: I feel like this is not something that the Central
Speaker 1: Bank governor, who was behind the creation of the ZIG
Speaker 1: or the Zimbabwe gold was expecting.
Speaker 2: I think to an extent they expected this, perhaps not
Speaker 2: the effect because it does also affect government revenues because
Speaker 2: they do call it taxes as well from an activity
Speaker 2: on the stock market. But I think they expected the
Speaker 2: new currency, the ZIG buying large to provide some stability
Speaker 2: right across all economic sectors and the Finance Minister in
Speaker 2: the early days of the new currency's launch. You know,
Speaker 2: he also hinderated that they could foresee some sort of
Speaker 2: stability setting into the stock market and particularly on the
Speaker 2: share prices.
Speaker 1: As far as businesses go, the introduction of a new currency,
Speaker 1: I can only imagine it presents a few challenges or
Speaker 1: a number of the people involved. I mean, what is
Speaker 1: it that they're actually having to prepare for.
Speaker 2: So with businesses, what the that to do is pretty
Speaker 2: much convert their systems from the old currency of the
Speaker 2: Zimbabwean dollar to the ZIG. So it's an activity that
Speaker 2: initially disrupted commerce because you know, they had to do
Speaker 2: this switchover. It doesn't you know, all done at the
Speaker 2: same time. Some banks were able to finish much quicker
Speaker 2: than others and others took much longer. So you had
Speaker 2: some disruptions that took place to commerce and everyone. So
Speaker 2: like try to change over to ZEG from the Zimbabwin dollar.
Speaker 1: After the break, we dig into the man behind the
Speaker 1: launch of the ZIG in Zimbabwe and what exactly he's
Speaker 1: trying to achieve for the country's economy. We'll be right back.
Speaker 1: Welcome back, all right, let's talk about the Central Bank,
Speaker 1: Ray because the central Bank governor has really been outspoken
Speaker 1: in terms of his support for the ZIG. Can you
Speaker 1: just talk to us about the governor and what exactly
Speaker 1: he's been saying.
Speaker 2: So he's been very polish promoting the new currency. Since
Speaker 2: it's long he's been on several speaking engagements across the
Speaker 2: country to explain what the currency is all about and
Speaker 2: what he sees happening. So the governor has got his
Speaker 2: work cut out in terms of convincing the population. And it's
Speaker 2: also been very vocal as well, you know, saying that
Speaker 2: the starting point is for them as a central bank
Speaker 2: to win back that confidence that they've lost over the
Speaker 2: past couple of years because of you know, the experiences
Speaker 2: of high pain inflation.
Speaker 1: And what does he achieve with the introduction of this currency.
Speaker 1: I mean, obviously, if things go well, he can tell
Speaker 1: the fact that he was at the helm when the
Speaker 1: Zimbabwean currency actually succeeded. But is there something else that
Speaker 1: we're maybe missing here the governor.
Speaker 2: We had to sit down interview with him recently and
Speaker 2: that's one of the first things that we posed to
Speaker 2: him to say, what is he trying to achieve with
Speaker 2: this new currency, and this is what he had to say.
Speaker 2: MY main priority is to make sure that I stabilize
Speaker 2: the currents in the next ninety three hundred days. So
Speaker 2: he's sticking to the mandate of the central Bank, which
Speaker 2: is price stability and exchange rate stability. That's what he's
Speaker 2: setting out to do over the next one hundred days
Speaker 2: since his appointment on March twenty eight.
Speaker 1: And that would require a lot of things to be
Speaker 1: put in place by authorities in order to get buy
Speaker 1: And I assume is there buy in at this point
Speaker 1: in time, and how did authorities actually go about rolling
Speaker 1: out this new unit.
Speaker 2: So the authorities themselves, they are saying one of the
Speaker 2: things that they've agreed on is that they'll last companies
Speaker 2: to pay fifty percent of their quarterly taxes in Zeke
Speaker 2: as a way to promote demand. But that's been as
Speaker 2: far as the main sort of ask from them. So
Speaker 2: I think they need to do more if that demand
Speaker 2: for Zeke is going to really take a place within
Speaker 2: the economy. What they've asked so far as the starting point,
Speaker 2: we'll see a lot of demand in June for payments
Speaker 2: of taxes by companies, and they the governor himself has
Speaker 2: also say that he expects the ZEK to strengthen even
Speaker 2: further around that time period.
Speaker 1: And Ray, as we mentioned you're in Harara. I mean,
Speaker 1: what's been the reaction on the streets. Considering these are
Speaker 1: many people who have probably lived through the days of
Speaker 1: hyperinflation in Zimbabwe, how are they actually feeling about this?
Speaker 2: The selling point about being gold backed really means nothing
Speaker 2: to a lot of people. People have lost before, savings,
Speaker 2: they've lost money before. So the feeling is here we
Speaker 2: go again. You know, whether it to work or not
Speaker 2: is really something that a lot of people are still
Speaker 2: holding out and not banking and believing, you know, it's
Speaker 2: going to work out. At the moment, the key issues
Speaker 2: the central bank has to win over the confidence of citizens.
Speaker 1: And finally, Ray, we're still talking about a country that
Speaker 1: has inflation that is north of fifty percent. There's poverty,
Speaker 1: there's also unemployment. There are a number of economic issues
Speaker 1: that Zimbabwe is grappling with on a daily basis. If
Speaker 1: the ZIG actually succeeds, does it help resolve some of
Speaker 1: these issues.
Speaker 2: With the new currency being launched, the expectation by the
Speaker 2: central Bank is that inflation is going to begin to fall.
Speaker 2: In fact, the Governor told us that he sees inflation
Speaker 2: anyway below five percent and that's on the back of
Speaker 2: inflation which in March was around fifty five percent, So
Speaker 2: the expectation is to bring it down to single digits
Speaker 2: by the end of this year as a result of
Speaker 2: the introduction of the Zeke the Zimbabwe Gold.
Speaker 1: Ray thanks again so much for your time, and as
Speaker 1: Ray said, it may be too early to tell whether
Speaker 1: the Zimbabwe goal will actually be deemed a success for
Speaker 1: the country. Zimbabwe has been relying on the US dollars
Speaker 1: since two thousand and nine, back to the time of hyperinflation,
Speaker 1: and as mentioned, it now accounts for eighty percent of
Speaker 1: all transactions in the economy, so key to adoption and
Speaker 1: as the Deputy President says, eventually dedollarization may be the
Speaker 1: zig being more widely accepted for your basic needs, so
Speaker 1: that Zimbabweans can actually feel the benefit of a currency.
Speaker 1: And you can hear more stories like this one on
Speaker 1: the Next Africa podcast, available every week, and don't forget
Speaker 1: to subscribe, rate and review this podcast. We'll be back
Speaker 1: next week.