‘How ZiG will look like if gold prices plummet’

ZIMBABWE’S economic stabilisation programme is entering a defining phase, as debate continues over the sustainability of Zimbabwe Gold (ZiG), the country’s reserve position and the broader outlook for economic reforms. At the centre of this debate is Reserve Bank of Zimbabwe governor John Mushayavanhu (JM), whose tenure has been marked by tighter monetary controls, reduced inflation and efforts to restore confidence in the financial system after years of currency instability. Yet questions persist over whether the current gains can withstand external shocks such as falling gold prices, global financial tightening and lingering investor scepticism over policy consistency. In this wide-ranging interview with our senior business reporter Freeman Makopa (FM), Mushayavanhu discusses ZiG’s safeguards against another currency crisis, the future of quasi-fiscal activities and why he believes Zimbabwe’s economy is gradually regaining stability. Find excerpts from the interview below:

FM: If gold prices were to fall or global financial conditions tighten, how vulnerable would ZiG be?

JM: ZiG was designed as a structured currency whose issuance is anchored on reserve assets. Under this framework, the local currency component of reserve money is backed by foreign exchange and gold reserves held by the Reserve Bank. This represents a fundamental departure from previous currency arrangements and provides a strong safeguard against excessive liquidity creation.

While a sharp decline in international gold prices or a tightening of global financial conditions would present challenges for many emerging and commodity-dependent economies, ZiG is supported by a substantial reserve buffer. Reserves currently stand at approximately US$1,5 billion and are on an upward trajectory, compared with ZiG’s reserve money of about US$269 million. This means reserves cover the local-currency component of reserve money more than five times. In addition, the reserve position is more than double total ZiG deposits held in the banking sector.

FM: What safeguards are in place to prevent another currency crisis?

JM: These coverage levels provide significant comfort that ZiG is adequately backed and that the Reserve Bank has sufficient reserves to support the structured currency framework. Furthermore, the reserve backing is not solely dependent on gold. It comprises a combination of gold and foreign currency assets, thereby providing diversification and reducing exposure to movements in any single asset class. Zimbabwe's external sector also provides an important source of resilience. The country continues to generate substantial foreign currency inflows totalling US$16,3 billion in 2025, largely from exports and diaspora remittances. The current account has remained broadly in surplus, giving impetus to reserve accumulation. In addition, the Reserve Bank maintains a prudent monetary policy stance and continuously monitors reserve adequacy, liquidity conditions, exchange rate developments and global economic trends.

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The bank has been able to intervene in the market to clear any pipeline forex demand. While no currency is completely immune to external shocks, the combination of strong reserve backing, sustained foreign currency generation capacity, the willing-buyer willing-seller exchange rate framework and disciplined macro-economic policies has significantly strengthened the resilience of ZiG and substantially reduced the risk of the currency instability experienced in the past.

FM: Investors argue that Zimbabwe's biggest challenge is not inflation but trust.

JM: The Reserve Bank fully agrees that trust and credibility are fundamental to the success of any currency. Given Zimbabwe's monetary history, we recognise that confidence can only be rebuilt through consistent policy actions and a sustained track record of stability.

Against this background, we have built the current monetary framework on a stronger foundation of policy discipline, reserve backing, and market-based mechanisms. The introduction of ZiG was underpinned by a commitment to maintain adequate reserve backing while ensuring that money supply growth remains prudent and consistent with economic fundamentals.

We have adopted a disciplined monetary policy focused on price and exchange rate stability, while refocusing the Reserve Bank on its core mandate and discontinuing quasi-fiscal activities that previously fuelled excess liquidity and macro-economic instability. These measures have resulted in gains, including the achievement of single-digit inflation and the maintenance of a stable exchange rate. We are alive to the fact that confidence is built through outcomes rather than promises.

As such, economic agents, including investors, will judge us by our ability to maintain exchange rate stability, preserve ZiG’s purchasing power, contain inflation, and sustain policy consistency over time. Since trust is not restored overnight, a sustained track record of policy credibility, predictability, and stability is key. Our commitment is to continue implementing policies that reinforce confidence in the currency and support a stable macro-economic environment for investment and economic growth, while allowing our actions to speak louder than our words.

FM: Can you guarantee that there will be no return to quasi-fiscal activities?

JM: The Reserve Bank of Zimbabwe remains firmly committed to monetary discipline and price stability, and its current policy framework is designed specifically to prevent a recurrence of quasi-fiscal activities or the monetisation of government expenditure. The bank is operating under a monetary targeting framework, in which policy actions are guided by reserve money targets that are carefully calibrated to be consistent with targeted inflation levels, exchange rate stability, and sustainable economic growth.

This framework imposes clear quantitative limits on liquidity expansion and ensures that monetary conditions remain aligned with macro-economic stability objectives. Furthermore, the bank acknowledges that quasi-fiscal operations are inherently inflationary and distort the effective transmission of monetary policy. As such, all quasi-fiscal activities have been decisively hived off from the Reserve Bank’s balance sheet, reinforcing the institutional separation between fiscal and monetary authorities. This reform strengthens transparency, accountability, and policy credibility, and ensures that the Reserve Bank focuses exclusively on its core mandate of maintaining price and financial stability.

FM: Are current policies stabilising the economy at the expense of growth, job creation and industrial expansion?

JM: The relatively high real interest rates reflect a deliberate and necessary policy stance aimed at restoring and safeguarding stability. In an environment previously characterised by high price and exchange rate volatility, maintaining positive real interest rates is critical to anchoring inflation expectations.

While current monetary conditions may appear restrictive in the short term, they are intended to correct underlying imbalances and create a stable foundation for broader economic expansion. Thus, the current policy approach does not aim to suppress economic activity, but rather to ensure growth is durable, non-inflationary, and supported by strong fundamentals.

In addition, the bank has established the Targeted Finance Facility (TFF), a monetary policy instrument designed to support the productive sectors of the economy by providing structured, concessional funding through participating financial institutions. Under this facility, the Reserve Bank extends funding lines to banks, which in turn on-lend to productive sectors at relatively affordable and targeted interest rates. The objective is to ensure continued access to credit for productive activities that drive output, value-addition, exports and employment creation. The TFF complements overall monetary stability efforts by easing financing constraints in the real economy without undermining broader objectives of price and exchange rate stability.

FM: Some say the Reserve Bank is too focused on fighting inflation at the expense of productive sectors.

JM: It should be noted that the policy rate dictates the cost of borrowing in an economy and serves as the primary tool for managing inflation and currency stability. The response of the policy rate to disinflation is not immediate and one-for-one.

In most cases, policy rates have been kept constant even after inflation has fallen for a period of six to 12 months. Most central banks take a gradual, well-calibrated, data-driven approach to achieve a smooth decline in policy rates in line with the envisaged inflation target.

Against this backdrop, the RBZ will continuously monitor and assess incoming data on inflation and other economic variables to inform the policy stance. While the recent oil price shock is expected to increase prices in the near term, the MPC assessed that, in order to limit the second-round effects of the fuel price increases and ensure inflation expectations remain anchored to support continued low and stable single-digit inflation, it would maintain the bank Policy Rate at 35%.

In addition, the RBZ introduced the TFF in January 2025 aimed at ensuring a continued flow of credit to the productive sectors of the economy. The RBZ extended the facility under the same terms and conditions and availed an additional ZiG600 million under the TFF in 2026, bringing the total available to productive sectors to ZiG1,2 billion. Banks will borrow from the central bank at an interest rate of 20% per annum and on-lend at a maximum all-in interest rate of 30% per annum. This is against commercial lending rates of between 40% and 49% for individuals and corporates.

FM: Why do you think global capital is still sitting on the sidelines?

JM: While Zimbabwe has made significant progress in restoring macro-economic stability through exchange rate stabilisation, lower inflation, fiscal discipline and the introduction of ZiG, foreign investors typically assess not only current conditions but also the sustainability of those gains over time.

In addition, elevated global interest rates, geopolitical uncertainties and increased competition for capital across emerging and frontier markets have generally made investors more selective. However, it would not be accurate to suggest that foreign investors are entirely on the sidelines. Capital inflows have been selective and sector-specific, reflecting both opportunities and risks. Zimbabwe continues to attract substantial investment interest, with the Zimbabwe Investment and Development Agency reporting an investment pipeline of approximately US$50 billion.

While some investors remain cautious due to historical perceptions and debt-related challenges, the evidence points to growing confidence in sectors with strong fundamentals and attractive returns. As Zimbabwe continues to maintain macro-economic stability, advance reforms and address outstanding debt issues, we expect increasing investment interest to translate into actual capital inflows and project implementation.