- ZiG depreciated 36% against US$ in just 2 months outpacing previous currency declines
- Government's heavy-handed tactics to enforce ZiG usage have failed to stabilize the currency
- Due to lack of confidence, insufficient reserves, and limited scope of use mirroring the fate of Zimbabwe's past currency experiments
Harare- In the latest currency saga in Zimbabwe, the newly introduced Zimbabwe Gold (ZiG) has struggled to maintain stability against the US dollar. Since its launch just two months ago on the parallel market, the ZiG has already depreciated by a staggering 36% - far outpacing the decline of previous currencies like the Bond Notes and RTGS, then ZWL.
Despite some stability in the officially controlled formal market exchange rate, the ZiG continues to face a currency conundrum that is severely impacting its acceptability and usage. This current depreciation rate is much more severe than the 20% decline seen in the first month for the Bond Notes, and the less than 30% drop in the initial two months for the RTGS/ZWL.
The ZiG lost 35% of its value in the very first month, prompting officials to take drastic measures to try to prop up the currency. This has included cracking down on illegal foreign currency traders and companies that refuse to price goods in ZiG or add excessive mark-ups.
However, these efforts have done little to address the ZiG's core issues. The currency continues to face serious challenges around acceptability and stability, forcing the government to resort to the use of force.
Additionally, the ZiG is not even available in small denominations of 1, 2, 5, and 10 units, making it impractical for many everyday transactions. As a result, prices for goods and services are often simply rounded up to one US dollars.
The reasons behind the ZiG's rapid devaluation and limited usage are multifaceted. Lack of confidence in the government, insufficient gold and US dollar reserves to back the currency, and a narrow scope of accepted uses have all contributed to the ZiG's demise.
Moving forward, the government would be better served by allowing the ZiG exchange rate to be determined by market forces, rather than continuing futile efforts to prop it up. Addressing underlying issues, such as boosting gold production and curbing corruption, could also help strengthen confidence in the currency.
Attempts to enforce the ZiG's acceptance through coercive measures, reminiscent of previous currency regimes, have proven ineffective. Currency is fundamentally a psychological phenomenon, and the market has clearly lost faith in the government's ability to manage this latest currency experiment.
Unless the government can swiftly address the ZiG's structural deficiencies, this latest currency gamble seems poised to join the long line of failed Zimbabwean currency initiatives over the past decade. The market has spoken, and the government would be wise to heed its message rather than continuing counterproductive interventions.
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