Zimbabwe is switching to a new national currency, but the Sahel Alliance is in no hurry to do so yet
The Reserve Bank of Zimbabwe introduced a new national currency ZiG in early April.
«Reserve Bank of Zimbabwe Governor John Mushayavanhu announced the introduction of a new currency, ZiG (Zimbabwe Gold)», says a report in local publication Pindula News. ZiG will replace the Zimbabwean dollar and will be backed by gold, other precious metals and foreign currencies, particularly those the country receives from foreign companies developing natural resources on its territory.
Let’s start with the reasons why. For more than two decades Zimbabwe has been in a state of serious economic crisis. The authorities are trying to stabilize the economy of this southern African country, which has one of the highest inflation rates in the world — 55%. Over the past year, the local currency has lost almost 100% of its value against the US dollar.
Zimbabwe’s currency problems are a chronic disease. The authorities have already had attempts to abandon the national dollar in favor of the U.S. dollar, but then everything returned to normal. The local currency was revived in 2019, but the confidence of the population in it has not returned. Prices for goods and services are still quoted in US dollars. Most Zimbabweans prefer to receive a dollar salary. Those who receive their salaries in local currency usually rush to exchange offices on payday to stock up on U.S. dollars before the next devaluation. In recent years, the government has even tried to stabilize the economy by issuing gold coins, but even that failed.
The current solution is the latest attempt to stabilize an economy that has fluctuated from crisis to crisis over the past 25 years. Unveiling the new banknotes, newly inaugurated Central Bank Governor John Mushayavanhu said the ZiG will be structured and set at a market-determined exchange rate. According to the Central Bank governor, the starting rate of the Zimbabwean Gold to the US dollar will be ZiG 13.5 to one US dollar. Meanwhile, the US dollar, which accounts for 85% of transactions, will remain legal tender and will probably continue to be favored by most people.
It is important to note that Zimbabweans have a historical distrust of their Central Bank, fearing a repeat of the negative consequences of similar decisions in the recent past. The new Central Bank Governor has promised that this will be avoided. However, he did not explain how the country’s leadership plans to stabilize the current unfavorable situation, which is aggravated by a serious drought that destroyed half of the maize crop. That puts Zimbabwe on the brink of a food crisis.
Russian and foreign financial analysts are quite skeptical about the prospects of this experiment. They believe that the country’s leadership should focus its efforts on developing mechanisms that would help reduce the budget deficit and external debt, rather than on a new currency that will not resist the onslaught of hyperinflation.
Let us turn to another example that is diametrically opposed to what is happening in Zimbabwe.
Back in September 2023, Burkina Faso, Mali and Niger signed a charter to create the Alliance of Sahel States (AoSS). The three countries announced their withdrawal from the Economic Community of West African States (ECOWAS) on January 28, 2024.
In February 2024, the head of Niger, General Abdourahamane Tiani announced the possible creation of a common currency with Burkina Faso and Mali, saying that the currency would be «the first step towards liberation from the legacy of colonization». Right now, however, Alliance leaders are in no hurry to introduce their own currency to replace the CFA franc (CFA — from the initial letters of la Communauté financière africaine, the African Financial Community). Let’s look at the pros and cons in detail.
First of all, it is an important monetary project for economic independence, which would symbolize control over its monetary «destiny». That is, economic freedom from the former colonial power — France.
However, there is a serious risk — the possibility of mass counterfeiting is high. AoSS leaders fear that throwing in counterfeit bills would undermine confidence in the new currency and lead to a devastating inflationary spiral for their still-fragile economy.
But is it just the counterfeiters? There is a good chance that it is France that will be the main obstacle to the emergence of this new currency. Paris is really wary of abandoning the franc, because of the enormous economic advantages for it. The currency is the «neo-colonial jackpot» that France is not ready to give up. France maintains tight control over the economies of its former colonies, limiting their fiscal space and their ability to finance development.
This is why the AoSS initiative looks like a bold attempt to break these monetary chains. By creating their own currencies, Mali, Niger and Burkina Faso intend to regain control of their monetary policies and use the funds to realize their development ambitions. A risky bet, but one that holds great hope for the peoples of the Sahel.
Perhaps, leaders are in the process of discussing the intricacies of such reform, but one thing is certain: the battle for Africa’s monetary sovereignty is just beginning…