- ZiG traded at ZiG13.2183 up 1 percentage point from the previous week's low of ZiG13.3976
- Parallel market continues to trade at ZiG21 per US dollar, true market value of the currency
- Banks' inability to meet US dollar demands have drove the public into black market
Harare- The Zimbabwe Gold (ZiG) traded at ZiG13.2183 on May 24, 2024, moving up from a low of ZiG13.3976 the previous week. This represented a 1 percentage point decrease from the prior week.
The ZiG, which the authorities claim is backed by sufficient gold and US dollar reserves valued at US$285 million, has maintained stability in the official market since its inception on April 5.
Performing at this rate, the ZiG has become the strongest currency in the Southern African Development Community (SADC), surpassing both the South African rand and the Botswana pula.
However, on the black market, which the government is struggling to control through the use of force and verbal attacks, the rate continues to trade at ZiG21 against the US dollar, while peer-to-peer markets are trading at ZiG20 per dollar.
This runaway parallel market rate suggests that the true value of the ZiG is determined by market forces of supply and demand, rather than the official pegged rate.
Zimbabwe's economy remains highly informal, and banks lack adequate US dollar reserves to meet the demands of companies, let alone ordinary citizens.
Due to a lack of trust and confidence in the authorities and the currency, businesses, especially those selling apparel, capital goods, and cellphones, continue to peg their prices in US dollars.
As a result, a spike in the parallel market rate means more ZiGs are circulating in the economy, against few US dollars hence, people must convert them to US dollars to purchase fuel, capital goods, pay rent, passport fees, and licenses.
To meet the US dollar demand, as banks are instructed to provide US dollars primarily to companies, the general public will turn to the black market, where they can obtain US dollars at inflated rates although determined by market forces.
One way to undermine confidence in the system is the use of excessive force to eliminate the parallel market, which will only worsen the lives of the general populace.
The black market cannot be fought with a gun but with reserves.
The government should also acknowledge the failure of the ZiG so far and inject reserves into the economy, rather than relying on police and verbal attacks.
The fact that these forceful measures are being employed suggests that the government's reserves are insufficient, despite its claims.
Equity Axis News
