HARARE, – Five months after the introduction of Zimbabwe’s latest currency, the gold-backed ZiG (Zimbabwe Gold), the currency is under intense pressure as the nation grapples with economic challenges.
Increased grain imports have significantly drained foreign reserves, raising concerns about the government’s plan to make the ZiG the country’s sole legal tender by 2026.
The ZiG, launched in April 2024, is Zimbabwe’s sixth attempt at establishing a stable currency in the past 15 years. Initially introduced at an exchange rate of 13.6 ZiG per U.S. dollar, the currency has experienced a rapid devaluation, losing almost 80% of its value on the black market. Currently, the black market rate fluctuates between 20 and 26 ZiG per U.S. dollar, while the official exchange rate stands at 13.9 ZiG per U.S. dollar, according to Pricecheck, a platform that monitors exchange rates.
Economists and market traders alike have expressed skepticism over the future of the ZiG. Prosper Chitambara, an independent economist, pointed out that the devaluation reflects a deeper issue of trust in the new currency. “The slow uptake of the ZiG highlights the population’s reluctance to fully embrace it, which is a sign of low confidence,” Chitambara said.
Maynard Maketo, a street vendor in Harare, shared this sentiment. “The ZiG has been getting weaker, so it does not make business sense to transact with it. I don’t have faith in the ZiG. We’ve been here before with the Zimdollar, and I don’t see this being any different,” Maketo explained, referring to Zimbabwe’s previous failed currency experiment.
Despite these challenges, some government officials remain optimistic. Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee, emphasized that it was premature to declare the currency a failure. “It’s too early to judge the success of the ZiG. Uptake may have been slow, but this is expected in the early stages of a new currency,” Gwanyanya stated.
To bolster confidence in the ZiG, Gwanyanya suggested that the government take more proactive steps to increase its circulation. One proposed measure is for the government to charge more taxes in ZiG, effectively forcing its usage in everyday transactions. “The government, more than anyone else, should demonstrate its preference for the ZiG by increasing its usage in tax payments. Additionally, injecting more foreign currency into the market could help stabilize the exchange rate and build trust,” he said.
However, many in the business community remain unconvinced. Carol Munjoma, a grocery trader in downtown Harare, said she conducts all her business in U.S. dollars due to the instability of the ZiG. “Where I source my products, they don’t accept the ZiG. To protect my business, I charge in U.S. dollars. For the ZiG to be accepted here, it would need to be stable,” Munjoma remarked.
Zimbabwe’s economic struggles, including a reliance on grain imports, have only exacerbated the difficulties of introducing a new currency. Grain imports, vital for food security, have significantly reduced foreign currency reserves, which are essential for stabilizing the local currency. This depletion threatens to undermine the government’s timeline for making the ZiG the country’s only currency by 2026.
The situation also recalls Zimbabwe’s troubled past with its previous currency, the Zimbabwean dollar, which collapsed under hyperinflation. The introduction of the ZiG was meant to inspire a fresh start, anchored by the nation’s gold reserves, but the rapid depreciation suggests that the road to stability may be longer than expected.
In July 2024, the central bank’s governor, John Mushayavanhu, told Reuters that the authorities were committed to building trust in the new currency, and Gwanyanya echoed this sentiment. “It is far too early to declare the death of the ZiG,” Gwanyanya reiterated, emphasizing that the government has plans to ensure the currency’s long-term viability.
While the Zimbabwean government remains optimistic about the ZiG’s future, many Zimbabweans are wary, having lived through previous currency collapses. If the ZiG continues to lose value, the government may face increasing pressure to either stabilize it or risk seeing the population turn back to foreign currencies, such as the U.S. dollar, for everyday transactions.
As the 2026 deadline for making the ZiG the sole legal tender approaches, it remains to be seen whether the currency can gain enough public trust to fulfill its intended role as the foundation of Zimbabwe’s economic system.
Source: Reuters