HARARE – President Emmerson Mnangagwa has defended the Reserve Bank of Zimbabwe’s (RBZ) recent devaluation of the Zimbabwean dollar (ZiG), claiming the move will promote “greater flexibility,” encourage price discovery and entice holders of foreign currency to trade on the official market.
Mnangagwa, speaking on Monday, insisted that the currency is sufficiently backed and attributed the recent depreciation of the ZiG to “speculation.”
“We believe that allowing greater flexibility in the exchange rate will help with price discovery and encourage those holding forex to trade through official channels,” Mnangagwa said, emphasizing that the currency’s backing remains strong.
However, critics argue that the president’s remarks overlook deeper structural issues within Zimbabwe’s economy and question the efficacy of the devaluation strategy.
Analysts refute Mnangagwa’s assertion, pointing out that most Zimbabweans and businesses have little confidence in the official exchange market. The parallel market, where exchange rates reflect the true value of the currency, remains the preferred choice for forex transactions. The official rate, even after devaluation, is seen as artificially controlled and disconnected from market realities, making it unattractive for those holding foreign currency.
“The government’s approach assumes that people trust the official channels, but the reality is that most businesses are entrenched in the parallel market where rates are more realistic,” said an economic analyst who wished to remain anonymous. “Simply devaluing the currency without addressing the lack of trust in the system won’t change the situation.”
Mnangagwa’s claim that the ZiG is sufficiently backed has also been met with scepticism. Critics highlight Zimbabwe’s weak foreign reserves, rampant inflation, and struggling export performance as evidence that the currency lacks the robust economic foundation necessary to maintain value. The government’s history of printing money to cover deficits has further eroded public confidence in the local currency, leading to widespread preference for the U.S. dollar.
“The president’s insistence that the currency is adequately backed is questionable, given Zimbabwe’s weak economic fundamentals,” the analyst added. “Without stronger foreign reserves and inflation control, it’s difficult to see how the ZiG can maintain its value.”
Mnangagwa attributed the recent weakness of the ZiG to “speculation,” but experts argue that speculation is merely a symptom of deeper economic instability. High inflation, fiscal mismanagement, and policy uncertainty are driving speculative behaviour, rather than speculation being the root cause of the currency’s depreciation.
“Speculation happens when people have no faith in the economy or currency stability,” the analyst said. “Blaming speculators without addressing the underlying causes is missing the point. The government needs to restore confidence by implementing sound fiscal policies.”
While the devaluation of the ZiG may offer temporary flexibility, critics maintain that without broader economic reforms, such as re-industrialization, fiscal discipline, and fostering trust in monetary policy, the move will likely exacerbate the country’s financial crisis. Addressing the root causes of Zimbabwe’s economic woes, including inflation and the lack of formal job creation, remains critical to stabilizing the currency and restoring economic growth.
As Zimbabwe continues to grapple with economic challenges, the debate over the future of the ZiG and broader fiscal policies will remain central to the country’s economic recovery.