Reserve Bank of Zimbabwe Governor John Mushayavanhu said he is ready to intervene to curb excessive gains by the newly-introduced Zimbabwe Gold (ZiG) currency.
Zimbabwean authorities introduced the gold-backed currency on April 5, after the Zimbabwe dollar had declined 80%.
Mushayavanhu is now worried that ZiG is appreciating too fast after it advanced 1.6% against the U.S. dollar since its launch.
In an interview with Bloomberg from the central bank’s offices in Bulawayo, the second-largest city, on Wednesday, Mushayavanhu said:
If it becomes too strong, the central bank can intervene by going into the market. Depending on if it becomes too strong or too weak, you can either buy or sell and bring it back to normal. We expect that if market forces are working, which they are, there may be no need for that…
Since we launched the ZiG on April 5, it has been trading and the exchange rate that you are seeing where it has firmed is not coming from the central bank, but has been determined by the market.
Mushayavanhu, however, did not specify what exchange rate level would prompt an intervention.
The ZiG represents Zimbabwe’s sixth attempt to establish a functional local currency, with the bond note and RTGS serving as its immediate predecessors.
Authorities say ZiG is backed by 2.5 tonnes of gold and US$100 million in foreign currency reserves held by the central bank.
Mushayavanhu also revealed that authorities abandoned plans to establish a currency board, first touted by the Treasury, after settling on backing the new currency with reserves.
He said the inflation forecast remains unchanged at anything between 2% and 5%, adding:
There is a danger of deflation. The central bank can always intervene from time to time and correct the exchange rate so that we don’t end up in deflation.
The central bank chief assured foreign investors with shares on the Zimbabwe Stock Exchange that they will be able to repatriate their proceeds when they sell. Dividends can also be repatriated, said Mushayavanhu.
He expressed confidence that a firming ZiG will likely put illegal foreign currency dealers out of business.
