Economist Professor Gift Mugano has urged the Zimbabwean government to clarify the connection between the value of the Zimbabwe Gold (ZiG) currency and gold, as well as other precious metals. He expressed concerns that the government may have shifted its position on exchange rate determination and emphasized the need for a clear explanation regarding how changes in gold prices impact the ZiG exchange rate.
In a post on X, Mugano outlined the initial exchange rate calculation when the Reserve Bank of Zimbabwe (RBZ) introduced the ZiG in April 2024. He noted that the initial exchange rate of the ZiG to USD was based on the following:
– ZiG1 was equivalent to 1 milligram of gold (ZiG1 = 1/1000).
– On April 5, 2024, the price of 1 gram of gold was US$73.3.
– This means that 1 milligram of gold (i.e., ZiG1) equated to US$0.0733.
– Using this direct formula for exchange rate determination, US$1 was valued at ZiG13.64.
Mugano further stated that if one were to apply the same formula with the current gold price of US$85.52 per gram, the new exchange rate would be:
– US$1 = 1/0.08552
– Therefore, US$1 would be equivalent to ZiG11.69.
He questioned the accuracy of the current exchange rate of US$1 to ZiG25 after a devaluation, calling for clarity on how the government arrives at this figure.
Additionally, Mugano requested that the government reconcile recent statements made by Finance Minister Mthuli Ncube with an excerpt from the RBZ’s Monetary Policy Statement (MPS), which outlines how the value of the ZiG relates to other currencies. An excerpt from the MPS explains that:
– The initial exchange rate will be based on the closing interbank exchange rate from April 5 and the London PM Fix price of gold from April 4, 2024.
– Future exchange rates will depend on the inflation differential between ZiG and USD inflation rates, as well as the price movements of a basket of precious metals held in reserves, with weights determined by the composition of these reserves.
Mugano’s comments came in response to remarks by Minister Ncube during a recent press briefing in Mt Hampden. When asked to explain the RBZ’s decision to devalue the ZiG by 42.55 percent against the US dollar despite rising gold prices, Ncube clarified that while the ZiG is backed by gold, its exchange rate is not directly tied to gold prices. He stated:
“There is a difference between fixing an exchange rate and backing an exchange rate. Gold backs the exchange rate. As I speak, our reserves are about US$370 million. The central bank has been actively intervening in the market and has sold the gold that supports the ZiG to provide the market with essential US dollars for import purposes.”
Mugano’s call for clarification reflects the need for greater transparency in the government’s approach to managing the ZiG and its relation to precious metals, as the evolving economic landscape poses challenges for Zimbabwe’s financial stability.
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