Harare,— Zimbabwe’s foreign currency reserves supporting the Zimbabwe Gold (ZiG) currency have surged past US$500 million, a level three times the amount of ZiG in circulation.
This increase in reserves is expected to enhance currency stability and curb inflationary pressures, providing a buffer against exchange rate volatility.
The ZiG currency has shown solid appreciation since the Reserve Bank of Zimbabwe (RBZ) implemented a devaluation in September. As of Friday, the ZiG stood at US$1.6, improving from US$1.4 at the end of October. This appreciation signals reduced demand pressure on foreign exchange and is likely to boost consumer purchasing power.
The RBZ currently holds foreign currency reserves totalling US$509 million, surpassing domestic currency bank deposits estimated at around ZiG12 billion. The RBZ Governor, Dr. John Mushayavanhu, credits recent policy measures for the stronger local currency, noting that these policies have effectively tightened ZiG liquidity in the market.
“The combined effect of our measures, including an increase in the policy rate from 20 percent to 35 percent and adjustments in reserve requirements, has greatly reduced excess ZiG in the market,” Dr. Mushayavanhu explained to The Sunday Mail. “The exchange rate has responded positively, also benefitting from an increase in foreign currency receipts.”
During the first nine months of 2024, Zimbabwe’s foreign currency inflows rose by 18 percent compared to the same period last year. This growth, according to Dr. Mushayavanhu, has supported a stable exchange rate under the “willing-buyer, willing-seller” framework, which allows market-driven adjustments based on supply and demand dynamics.
In alignment with these developments, the statutory reserve requirements were standardised, with demand and call deposits set at 30 percent for both local and foreign currencies, while savings and time deposits were maintained at 15 percent. This monetary tightening has contributed to a stable market environment, increasing willingness among economic players to exchange foreign currency for ZiG.
As of November 6, 2024, total reserve money in local currency stood at ZiG3.4 billion, or approximately US$129 million, against US$509 million in foreign reserves — effectively covering local currency reserves more than threefold. Dr. Mushayavanhu highlighted the RBZ’s commitment to sustaining ZiG stability through regular market interventions, using 50 percent of the 25 percent export surrender requirement to support legitimate foreign payments and further bolster foreign exchange reserves.
“The Reserve Bank’s substantial foreign currency reserve holdings mean that we can readily back the ZiG currency, ensuring its stability. Our reserve level has consistently surpassed domestic currency deposits, providing robust support for the exchange rate,” Dr. Mushayavanhu stated.
The RBZ’s proactive interventions underscore its strategy to maintain liquidity and market confidence, aiming for seamless settlement of foreign exchange transactions to promote a stable and resilient local currency.
Source: Sunday Mail