The currency close to home that tanked 100% in just 5 months
Zimbabwe’s ZiG currency, launched in April 2024, has experienced a sharp decline in value, losing 100% in just five months.
This new currency, initially introduced at 13 ZiG per US dollar, was designed to stabilise Zimbabwe’s economy by replacing the Zimbabwean dollar and mitigating inflationary pressures.
However, by late October 2024, the ZiG had devalued to around 26 ZiG per dollar, highlighting challenges that persist despite the government’s efforts to anchor the currency to gold reserves.
The currency’s steep depreciation is primarily attributed to a combination of internal and external factors, including government overspending, rising import costs, and declining export revenues.
To contain the pressure on the ZiG, the Reserve Bank of Zimbabwe adjusted the official exchange rate in September, devaluing the currency to 24.4 ZiG per dollar.
This measure aimed to narrow the gap between the official and parallel market rates, where the ZiG traded at a weaker level due to demand-supply imbalances.
However, this adjustment, rather than stabilising the currency, exposed Zimbabwe’s vulnerabilities, as inflation surged from 1.4% in August to 5.8% in September, straining consumer purchasing power and impacting business operations.
The ZiG’s rapid decline can also be attributed to Zimbabwe’s import dependency and external financial flows.
Rising food import costs, partly fueled by global inflation, increased the demand for foreign currency, which put downward pressure on the ZiG.
Furthermore, Zimbabwe’s reliance on mineral exports to generate foreign exchange has made the currency vulnerable to shifts in global commodity prices.
With gold, a key export, seeing price declines amid global market fluctuations, the country’s dollar reserves are under strain.
This pressure led Zimbabwe’s central bank to increase interest rates to 35% to control inflation, but high borrowing costs are now impacting business investment and household consumption, compounding the currency’s woes.
Efforts to promote the ZiG include mandating its use for tax payments and some government services, but public and investor confidence remains low due to Zimbabwe’s historical struggles with currency stability.
This is the sixth currency overhaul since 2009, and Zimbabweans are understandably sceptical.
Many opt to use the US dollar or other stable foreign currencies.
The central bank has also implemented capital controls and devaluation measures, but these actions have yet to build sufficient trust in the ZiG as a store of value.
In contrast, the rand is still viewed as relatively stable within the region, with South Africa’s diversified economy providing resilience against such sharp currency devaluations.
South Africa’s financial institutions maintain transparent monetary policies that have kept inflation and currency value within manageable limits, unlike Zimbabwe’s recurrent cycles of hyperinflation and currency instability.
Zimbabwe’s currency struggles underscore the challenges of achieving economic stability without addressing deeper fiscal and policy issues.
Experts caution that the ZiG’s long-term viability will remain uncertain without reducing government spending and fostering sustainable economic growth.
The ZiG’s five-month performance illustrates the obstacles Zimbabwe is facing in establishing a trusted national currency.
Ongoing depreciation and inflation risk a prolonged economic slowdown as citizens and investors alike seek alternatives to preserve their financial security.
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