Governor of Zimbabwe's central bank, John Mushayavanhu has expressed concern that the appreciation of the country's new currency against the Dollar could lead to deflation.

"What my fear actually is now is that we could be faced with deflation as opposed to inflation. Why would anyone increase prices in a currency environment which is strengthening," the governor said during a recent interview with ZimPapers Television Network.

Zimbabwe Gold, or ZiG, has risen 0.8% against the Dollar since it began trading last Monday. The new currency, backed by gold and a basket of foreign currencies, marks Zimbabwe's sixth endeavour to establish a viable local currency since 2008.

Each ZiG is valued at approximately 7 US cents, equivalent to the price of a milligram of gold, Bloomberg reports.

The new currency replaced the Zimbabwean Dollar, which depreciated by four-fifths of its value against the US Dollar this year before being replaced. This depreciation fuelled inflation and triggered painful memories among citizens of the hyperinflation era.

Last year, Zimbabwe ceased publishing local currency inflation data, opting for a measure that more accurately reflects the significant influence of the US Dollar in the economy. According to this measure, inflation surged to a seven-month high of 55.3% in March.

However, the central bank governor has said that the national statistics agency will now publish inflation in both ZiG and US Dollars.

Furthermore, he also defended the central bank's decision to set the key interest rate at 20% when the new currency was introduced on Friday, a significant reduction from the 130% rate on the old unit.

"Interest rates are also based on inflation targeting and if we are targeting that we will end the year at between 2% and 5%, then it follows that interest rates should also fall. If we got it wrong, the monetary policy committee meets every quarter and can review," Mushayavanhu added.