Nine months in: Is Dr Mushayavanhu’s ZiG revolution a bold move or risky bet?

In a year marked by economic uncertainty and external shocks, Zimbabwe’s Reserve Bank Governor, Dr John Mushayavanhu, has steered the nation’s monetary policy through a critical period of reform and stabilization.

Since assuming office, Dr Mushayavanhu has tackled pressing challenges, including exchange rate volatility, inflationary pressures, and the lingering effects of the El Niño-induced drought. Under his leadership, the introduction of Zimbabwe’s new currency, the Zimbabwe Gold (ZiG), has been a pivotal step toward restoring confidence in the local monetary system and addressing transactional dollarisation.

Backed by a firm commitment to sound monetary policy and aggressive foreign reserve mobilisation, his first nine months in office have set the stage for medium-term economic stability.

In this exclusive Q&A with Business Weekly’s Tapiwa Mangwiro, Dr Mushayavanhu discusses the successes and hurdles of his tenure so far, from stabilizing the exchange rate to managing inflation and ensuring financial sector resilience.

TM: Dr Mushayavanhu, you assumed office during a challenging period. How would you summarise your first nine months as Governor of the Reserve Bank of Zimbabwe (RBZ)?

JM: My first nine months have been both insightful and demanding. I took over at a time of heightened exchange rate volatility, rising inflation, and economic headwinds, particularly from the El Niño-induced drought. My focus was clear: restore price and currency stability while supporting economic activity.

We have made notable progress. Inflationary pressures have been contained, and the exchange rate has stabilised significantly, despite a brief spike in September. The introduction of the new currency, Zimbabwe Gold (ZiG), was pivotal. It has gained public confidence and helped reduce transactional dollarisation.

Equally important, we have built foreign reserves to back the ZiG, ensuring it is fully anchored. This strategy has fostered economic resilience and laid the foundation for medium-term stability.

TM: The launch of the ZiG has been a significant shift. What measures were taken to ensure its success?

JM: Introducing a new currency is never easy, especially given Zimbabwe’s historical challenges. The ZiG was designed to be fully backed by a basket of foreign reserves, including gold, other precious minerals, and nostro balances. This backing means we can only issue domestic notes and coins when fully covered by verifiable reserves.

We adopted a cautious “drip-feeding” approach to circulation, balancing the need for adequate currency with promoting a cash-lite economy. We started with smaller denominations and introduced the ZiG20 note. Higher denominations like ZiG50, ZiG100, and ZiG200 will be rolled out only when necessary.

Additionally, we have implemented policies to boost demand for the ZiG. For example, the Government now requires that 50 percent of quarterly tax payments be made in ZiG. This measure, coupled with growing public confidence, has strengthened the currency’s role in the economy.

TM: You mentioned exchange rate stability. How did the RBZ address volatility, and what role does the Willing-Buyer Willing-Seller system play?

JM: Exchange rate volatility was a major concern when I assumed office. We adopted a market-determined exchange rate system under the Willing-Buyer Willing-Seller arrangement, which allows greater price discovery and flexibility in foreign currency trading.

This system stabilised the exchange rate around ZiG13-14 per USD between April and August. A once-off depreciation in late September was a necessary adjustment to align the exchange rate with market fundamentals, particularly on the supply side.

The RBZ occasionally intervenes in the market to address shortfalls and smoothen variability, but we remain committed to a floating exchange rate system. Encouragingly, the parallel market premium, which once exceeded 40 percent, has dropped below 40 percent.

TM: Inflation has been another challenge. What strategies have been implemented to control it, and what results have you seen so far?

JM: Tackling inflation required a multifaceted approach. We implemented tight monetary policies to manage liquidity and money supply growth. Excess liquidity was wiped out, and reserve money was capped at ZiG4 billion for 2024, levels consistent with sustainable economic growth.

We used stringent open market operations, progressively increasing the Bank Policy Rate to 35 percent, raising statutory reserve requirements, and aggressively deploying non-negotiable certificates of deposit (NNCDs) to lock up surplus bank liquidity.

These measures yielded positive results. Month-on-month inflation, which spiked to 37,2 percent in September due to exchange rate realignment, fell back to 11,7 percent in November. We expect inflation to return to single-digit levels by year-end.

TM: How has the financial sector performed under your leadership?

JM: I am pleased to report that the banking sector remains safe, sound, and resilient. Banks have maintained adequate capital buffers, strong liquidity positions, and steady profitability. Asset quality has also been good.

The RBZ has reinforced its financial oversight and surveillance frameworks to safeguard stability.

We have implemented measures to foster discipline and compliance, which are critical for long-term financial sector health. A resilient banking system supports economic activity and growth, as banks play a central role in financial intermediation.

TM: Foreign reserves are crucial for currency stability. Can you elaborate on the RBZ’s reserve mobilisation strategy?

JM: A key pillar of our monetary policy has been building and managing foreign reserves. When we introduced the ZiG, we committed to full backing by foreign assets to maintain confidence. Since April, we have aggressively mobilised reserves, increasing them from US$285 million to over US$540 million by November. This reserve level covers the current stock of ZiG reserve money more than three times over.

At the local currency equivalent of ZiG13,6 billion, our reserves also exceed total local currency deposits in the banking sector, which stand at ZiG12,9 billion. This strong reserve position reinforces confidence in the ZiG and ensures its stability.

TM: Looking ahead to 2025, what are your priorities, and can we expect any shifts in monetary policy?

JM: Our primary focus will remain fostering price and currency stability while supporting economic growth. We anticipate a rebound in GDP growth from an estimated 2 percent in 2024 to a projected 6 percent in 2025. This growth will be driven by a favourable agricultural season, which will enhance food security, reduce inflation, and moderate the food import bill.

The external sector is also expected to remain strong, with sustained increases in foreign currency receipts and diaspora remittances. These developments will further cement the stability we’ve achieved so far.

On interest rates, we remain committed to maintaining positive real rates to preserve value and curb speculative borrowing. The Bank Policy Rate will be reviewed as necessary, based on inflation trends and economic output. Any adjustments will be informed by incoming data and our inflation forecasts.

TM: De-dollarisation remains a sensitive topic. How optimistic are you about progress in this area?

JM: De-dollarisation is a process, not an event, especially given Zimbabwe’s historical context. That said, we have seen encouraging progress. The ZiG has been widely accepted as a medium of exchange, and transactional dollarisation has declined significantly.

Financial dollarisation remains high, but we are addressing this through policies that increase demand for the local currency. For example, requiring tax payments in ZiG and implementing measures to boost confidence in the currency. Over time, as economic fundamentals improve, we expect further de-dollarisation.

TM: Finally, what message do you have for Zimbabweans and the business community as we approach 2025?

JM: I want to assure Zimbabweans and the business community that the RBZ remains committed to sound monetary policies that foster stability and growth. The progress we have made in the past nine months demonstrates our resolve to “walk the talk.”

We are building a strong foundation for medium- to long-term stability, underpinned by a resilient currency, robust reserves, and a disciplined financial sector.

I urge businesses and individuals to continue supporting the ZiG and to have confidence in our policies. Together, we can drive Zimbabwe’s economy toward its full potential.

TM: Thank you, Dr Mushayavanhu, for your insights and leadership.

JM: Thank you. It has been a pleasure.-ebsinessweekl