Zimbabwe has announced it is replacing its local currency with another backed by gold and foreign currencies with the aim of providing more stability and lowering inflation.

This is according to a statement by the central bank on Friday.

Zimbabwe reintroduced its own currency in 2019 following 10 years of dollarisation, yet it faced challenges in gaining public trust, with over 80% of domestic transactions now being conducted in foreign currency.

Over a 70% decline in the Zimbabwean Dollar since the beginning of the year has driven price hikes beyond 55% in March in annual terms, Reuters news agency reports.

The so-called Zimbabwe Gold (ZiG) will circulate alongside foreign currencies, said central bank governor John Mushayavanhu.

In addition, the Reserve Bank of Zimbabwe said it was “recalibrating” its principal interest rate and setting it at 20%, a significant reduction from the previous 130% rate.

The central bank said the starting exchange rate for the new currency would be determined by the closing interbank exchange rate on 5th April and the London PM Fix price of gold on 4th April.

The Reserve Bank said the new currency is “structured” and would be “anchored by a composite basket of foreign currency and precious metals (mainly gold) held as reserves for this purpose by the Reserve Bank.”

Governor Mushayavanhu told reporters: “If we implement these measures, we expect them to have an impact on inflation.”

As per the monetary policy statement, banks are required to convert their existing Zimbabwean Dollar balances into ZiG immediately. Additionally, individuals will have a period of 21 days to exchange their old notes and coins for the new currency.

The announcements on Friday mark the conclusion of several months of discussions and deliberations between the central bank and the finance ministry regarding currency reforms.