The Central Bank of Zimbabwe allowed their gold-backed currency, ZiG, to lose about 43% of its value against the US dollar. This devaluation comes after weeks of sustained and constant pressures on the currency.
Details of the gold-backed ZiG
Being the sixth attempt by the Zimbabwean government to stabilize the currency, especially after the Zimbabwean dollar collapsed in 2009 amid hyperinflations, the ZiG was introduced in April 2024.
Its introduction was mostly to serve the purpose of replacing the Zimbabwean dollar, which had depreciated by almost 80% since the start of the year.
Now, the ZiG has continued to decline, trading at 25.13 per dollar, compared to 13.99 per dollar the previous week. It has maintained that value since its introduction in April.
Upon introducing the ZiG, the government of Zimbabwe has faced cynicism from its residents. The locals fear further devaluation and have continued to transact in foreign currency. This fear is also fueled by the country’s history of failed attempts.
Due to this high demand for foreign currency, the Monetary Policy Committee of the Reserve Bank of Zimbabwe met on Thursday and decided to allow for more flexibility in the exchange rate.
Mushayavanhu, the central bank’s governor, then revealed that ZiG’s reserves currently stand at US$380 million from US$575 million in April.
The central bank additionally increased the benchmark rate to 35% from 20% to “ensure that inflation expectations remain well anchored as well as dissipate current inflationary pressures.”
Read Also: Zimbabwe seeks input from crypto firms on its virtual asset regulation guidelines.
Also, due to pressure on the country’s foreign reserves caused by increased imports of essential goods like grain, the MPC reduced the amount of foreign currency individuals can take out of the country. This was reduced from US$10,000 to US$2,000.
Now, Zimbabwe’s monthly inflation has also skyrocketed to 5.8% in September from the previous 1.4% in August reflecting the increased demand for foreign currency and the declining revenues from mineral exports as well.
According to the MPC, their newly set policies would mitigate the exchange risks and manage inflation expectations.
In their words, “The MPC is convinced that the above measures will go a long way in addressing the emerging exchange rate risks, anchor the inflation expectations, and stabilize prices in the near to short term. Going forward, the MPC will remain vigilant to any emerging risks to ensure continued macroeconomic stability.”
What You Should Know
Zimbabwe has had external funding challenges since 1999 after defaults, posing economic challenges to the nation. In 2008, the central bank printed 10 trillion Zimbabwean dollar notes to finance government borrowing amid hyperinflation.
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