In a significant policy shift, Zimbabwe’s Central bank allowed its gold-backed currency to fall about 43% against the dollar on Friday after weeks of sustained pressures on the currency.
The ZiG has remained under pressure, extending losses from last week, trading at 25.13 per dollar.On Thursday last week, the ZiG was trading at 13.99 per dollar – where it had been since it was introduced in April.The Zimbabwe Gold (ZiG) was introduced in April to replace the Zimbabwe dollar, which had lost almost 80% of its value since the beginning of the year.The Zimbabwean dollar had been relaunched in 2019 to curb hyperinflation under the long-time leadership of Robert Mugabe.
The ZiG is the sixth attempt at a stable currency since the Zimbabwean dollar collapse in 2009 amid hyperinflations. The government of Zimbabwe has battled skepticism from the local population who still transact in foreign currency following jitters of further multiple devaluations and the stained history of failed currencies.
The Monetary Policy Committee of the Reserve Bank of Zimbabwe met on Thursday, resolving to allow for greater exchange rate flexibility owing to the increased demand for foreign currency. According to the Zimbabwe’s central bank governor, Mushayavanhu, ZiG reserves currently stand at US$380 million from US$575 million in April.
The central bank additionally increased the benchmark rate to 35% from 20% to “ensure that inflation expectations remain well anchored as well as dissipate current inflationary pressures.”
The MPC also resolved to cap the amount of foreign currency an individual can take out of the country at US$2,000 from US$10,000 before. The country’s foreign reserves have been under pressure due to increased grain imports.
Monthly inflation surged to 5.8% in September from 1.4% in August, mirroring mounting pressures on the ZiG due to demand for foreign currency and declining revenues from mineral exports.
“The MPC is convinced that the above measures will go a long way in addressing the emerging exchange rate risks, anchor the inflation expectations and stabilize prices in the near to short term. Going forward, the MPC will remain vigilant to any emerging risks to ensure continued macroeconomic stability,” the MPC statement noted.
Zimbabwe has had external funding challenges since 1999 after defaults, posing economic challenges to the nation. In 2008, the central bank printed 10 trillion Zimbabwean dollar notes to finance government borrowing amid hyperinflation.
