• ZiG's Troubled Start: Despite initial hopes, the Zimbabwe Gold (ZiG) has seen a steady decline on the parallel market
• Speculation and Arbitrage: The widening gap between the official and parallel market rates is fueling speculative trading and arbitrage opportunities
• Re-Dollarization Risks: The government's plan to dedolarise before 2030 raises concerns, as past attempts have resulted in hyperinflation

Harare- The Zimbabwe Gold (ZiG) traded at 13.7863 on the 15^th of August, down from 13.7854 in the prior week, continuing the downward trend observed in July 2024. The ZiG, backed by gold and US dollar reserves, has experienced a disappointing performance in July, plummeting to record lows on the parallel market, reaching a high of ZiG25 per US$1.

When the ZiG was introduced on April 5, 2024, there was hope that it would alleviate exchange rate disparities and improve the lives of many. However, this hope is fading.

In its first month of issuance, the ZiG closed stronger but fell to ZiG21 per dollar by the end of April on the parallel market, representing a 36% premium.

The government responded by cracking down on street money changers and imposing heavy penalties on unauthorized money changers, leading to a decline in the parallel market rate to 17 per dollar in May before rising again to 21.5 in June.

In July, the parallel market rate depreciated by a significant 8.3% due to increased ZiG supply in the economy as government contractors requested payments ahead of SADC summit-related projects and preparations. This increased government spending.

As a result, the exchange premium widened from 55% at the beginning of the month to 74% by the end of the month, reaching levels similar to those observed during periods when the Zimbabwe dollar was on the verge of collapse. (On July 1, the interbank rate was 13.7025, while the parallel rate ranged between 20 to 22, resulting in a 55% premium. On July 30, the interbank rate was 13.796, and the parallel rate ranged between 23 and 24.5, leading to a 74% premium.)

This situation has fueled speculative trading driven by the arbitrage opportunities created by the disparity between the controlled interbank rate and the free market forces in the parallel market.

It's important to note that the general public still views the US dollar as a safe haven, and the parallel market offers convenient and readily available supply of the currency at a premium.

Meanwhile, the government has hinted at the possibility of reintroducing the Zimbabwe dollar as the main currency before 2030, as previously planned.

However, the dedolarization process would require increased actual gold reserves, US dollars, and an audit of gold to verify the actual reserves. Historically, all attempts to bring back the local currency have failed, resulting in record hyperinflation.

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