USD to ZiG: How is the Zimbabwe Gold fairing?

May 27, 2024 11:05 AM AEST | By Invezz

USD to ZiG: How is the Zimbabwe Gold fairing? — Image source: Invezz

Zimbabwe ZiG is holding steady

This stability has happened at a time when the government has moved to reassure investors, companies, and international institutions that the currency will hold well. It has ruled out printing money to fund government spending, which was blamed for hyperinflation that destroyed the other currencies.

The government has also pledged to continuing adding to its gold and dollar reserves, which started at 2.5 tons and $100 million. In a recent statement, the central bank’s deputy governor, Innocent Matshe, said that these reserves were rising. Zimbabwe’s gold reserves are coming from the country’s mining operations.

Additionally, the government has announced that it will launch new rules that will make businesses use the official ZiG exchange rate. This measure is intended to prevent the black market ecosystem that was partially blamed for the recent collapses of other currencies.

The other measure the government has implemented is that it will convert the annual budget to reflect the ZiG currency. In a statement at the time, Finance Minister Mthuli Ncube said:

“This is an exchange-rate translation at the end of the day. It’s just moving from one currency to another. We must use an exchange rate that is marked to market to make sure that we can align those revenue and expenditures to the real budget.”

The Zimbabwean Central Bank is also publishing the official exchange rate on its website to boost transparency.

IMF welcomes Zimbabwe ZiG amid risks

The IMF has welcomed the use of the ZiG in the Zimbabwean economy and is now planning to send a delegation to assess its performance.

Still, as I have warned before, the ZiG is a risky currency that faces an uncertain future because of the difficulty in maintaining its stability. As we have seen before, maintaining a currency’s peg is one of the toughest things to do.

The US ended its dollar standard in the 1970s as Richard Nixon dealt with high inflation and challenges of exchanging the currency to gold. Most recently, Hong Kong has spent billions of dollars to maintain its peg with the US dollar. The same is true with other dollar-pegged countries like Qatar and Bahrain.

Also, analysts caution that it will take longer to fully transition to the peg because of the US dollar dominance in Zimbabwe, where most people shifted to the US dollar. Most importantly, it is unclear how the government will fully fund its budget using the ZiG, whose valuation stands at less than $300 million.

The post USD to ZiG: How is the Zimbabwe Gold fairing? appeared first on Invezz

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