Less than six months after its launch, Zimbabwe’s gold-backed currency, the ZiG, has suffered a dramatic devaluation, losing over 40% of its value against the US dollar. This development underscores the ongoing challenges Zimbabwe faces in stabilising its economy and reducing its reliance on foreign currencies.
The move, announced in late September by the Reserve Bank of Zimbabwe (RBZ), saw the official exchange rate plummet from 13.56 ZiG to the US dollar to 24.4 ZiG. Further weakening has seen the rate climb to 27 ZiG to the US dollar this week. This latest setback adds another chapter to Zimbabwe’s long and turbulent history with currency instability.
The introduction of the ZiG in April 2024 was touted as a solution to Zimbabwe’s persistent economic woes, particularly the rampant inflation that had plagued the country for years. The Zimdollar, its predecessor, had become one of the world’s worst-performing currencies, losing almost all its value due to hyperinflation. By the time it was abandoned, it took 30,000 to 40,000 Zimdollars to equal one US dollar.
The collapse of the Zimdollar in 2009 forced the government to temporarily adopt a multi-currency system, with the US dollar becoming the dominant currency. This reliance on the US dollar continued, with approximately 85% of transactions conducted in US dollars by April 2024, according to RBZ Governor John Mushayavanhu.
The RBZ’s decision to devalue the ZiG was a direct response to the widening gap between the official and unofficial exchange rates. On the black market, the ZiG was trading at roughly double its official rate, creating significant distortions in the economy. Local businesses, facing the pressure of operating with the official rate, warned of potential closures if the discrepancy wasn’t addressed, as reported by the BBC.
This highlights the deep distrust many Zimbabweans have in their local currency, preferring the stability—perceived or real—of the US dollar. The black market rate continued its upward trajectory, reaching 40 to 50 ZiG to the US dollar by October 23rd, according to Zim Price Check, a price monitoring website.
RBZ Governor John Mushayavanhu, in an interview with the Zimbabwe Broadcasting Corporation, framed the devaluation not as a policy decision but as a reflection of existing market realities. He stated that the move “was not a devaluation but a manifestation of what was already happening on the market”.
He further expressed hope for future stabilisation, predicting a slight rise in inflation by year’s end followed by a subsequent price decrease.
“I’d say that the impact … has been felt, but there should be stabilisation going forward. In fact, we should see prices starting to fall,” he added.
However, this optimistic outlook is met with scepticism by many, given the currency’s rapid decline in such a short timeframe.
The ZiG, backed by a mix of foreign currencies, gold, diamonds, and other precious stones from Zimbabwe’s reserves, was intended to be a more stable alternative to the Zimdollar. The central bank cited reserves of 1.1 tonnes of gold (worth US$175 million) and US$100 million in foreign currency reserves at the time of the ZiG’s launch.
Zimbabwe possesses significant gold deposits, with gold accounting for almost 25% of all exports in January 2024. Despite these resources, the country’s economy continues to struggle under the weight of high inflation, leaving many Zimbabweans reliant on aid.
The ZiG’s introduction has yielded mixed results. While OK Limited bank reported a decrease in foreign currency sales in July in favour of the ZiG, the bank did not disclose the magnitude of this shift. Similarly, the use of US dollars for transactions has reportedly declined from 85% to around 70%, suggesting a degree of adoption of the ZiG.
However, this progress is overshadowed by the ongoing lack of confidence in the currency, particularly among ordinary citizens. A street vendor, Maynard Maketo, succinctly captured this sentiment when he told Reuters in September: “The ZiG has been getting weaker, so it does not make business sense to transact with it. I do not have faith in the ZiG. We have been here before with the Zimdollar.”
The government’s response to the currency’s instability included the arrest of black market foreign exchange dealers in April, accused of manipulating exchange rates. However, this action has not stemmed the decline of the ZiG on the unofficial market. The fear of a repeat of the 2009 hyperinflation crisis is driving many to exchange their ZiG for US dollars, further pressuring the local currency.
Some experts attribute the ZiG’s depreciation to the government’s decision to maintain a multi-currency system, while others caution against a hasty transition to a monocurrency system, advising a more gradual approach focusing on stabilising the ZiG first. The government aims to fully transition to the ZiG by 2026, having previously set a 2030 deadline.
The future of the ZiG remains uncertain. Even within the government, confidence appears to be waning. While government agencies were instructed to pay salaries and pensions in both ZiG and US dollars, the Grain Marketing Board paid wheat farmers exclusively in US dollars in September. Similarly, civil servants are set to receive pay raises and bonuses in US dollars this year. This divergence in policy sends a mixed message about the government’s commitment to the ZiG.
Experts suggest that while the devaluation wasn’t necessarily a negative move, the government must now focus on increasing the currency’s usage to build confidence. Lawrence Nyazema, president of the Bankers Association of Zimbabwe, told Reuters: “I don’t think we are seeing the death of the currency, but we have our work cut out for us. We have to do more work in terms of convincing the citizens that the money is stable. We needed to reset, and now that we have reset, we need to stick to our promises.”
The challenge for Zimbabwe now is to restore faith in its currency and prevent a repeat of the devastating economic consequences of the past. The path forward requires a multifaceted approach, addressing not only monetary policy but also the underlying structural issues that have plagued the Zimbabwean economy for years.
