• ZiG has experienced a staggering decline trading at a record low of 13.7689 against the U.S. dollar on July 24th, 2024
• Gap between the official and parallel market exchange rates has reached alarming levels, with the ZiG trading at 25 per dollar on the parallel market, compared to the official rate
• Concerns have been raised about the accuracy of the reported gold reserves, which are claimed to have reached $370 million, despite a decline in gold production and deliveries over the past six months

Harare- The embattled ZiG, a currency embroiled in a fierce battle for survival, has found itself in a perilous state, trading at an alarming rate of 13.7689 against the mighty U.S. dollar on July 24th, 2024 - its most precipitous daily plunge in recent memory, and potentially since its inception. This harrowing performance has culminated in a staggering 2% decline in its value cumulatively.

The most disconcerting aspect is the widening chasm between the official and parallel market exchange rates. By the end of April, this premium had ballooned to a staggering 36%, as the ZiG tumbled to a disheartening 22 per dollar on the black market, before narrowing to a still-concerning 17.5 and 18 in May and mid-June, respectively.

However, as of July 24th, 2024, the exchange rate volatility has reared its ugly head once more, with the ZiG trading at a dizzying 25 per dollar on the parallel market, even before the month's end on July 31st. Ominously, one can foresee the exchange rate potentially surpassing the 25 mark on the informal market during the month-end, as employees are paid predominantly in the local currency, further exacerbating the demand for the greenback.

When the parallel market exchange rate skyrockets, it is typically a telling sign that the official or government-controlled exchange rate is significantly lower than the market-driven rate on the informal, yet highly influential, parallel market. This disparity serves as a herald of the ZiG's precarious position, as it struggles to maintain its footing in the volatile forex arena.

This can be primarily attributed to the acute shortage of foreign currency reserves, coupled with a profound deficit in market confidence. However, the latest performance of the local currency suggests that the former factor has taken a more prominent role in its downward spiral.

Research conducted by Equity Axis reveals the ZiG plunging to an alarming rate of 25 per U.S. dollar on the parallel market, while peer-to-peer platforms are fetching a slightly higher, yet still concerning, rate of 21.5 per dollar. This cumulative loss of 46% in the local tender's value is a stark testament to the gravity of the situation.

During the introduction of the ZiG, the government had claimed that the currency was underpinned by 2.5 tonnes of gold, valued at an exorbitant $285 million. These reserves had been accumulated over a period of 18 months, from October 2022 to March 2024.  More recently, it was reported that the gold reserves had swelled to a staggering $370 million, according to statements made by Central Bank governor, John Mushayavanhu.

The reported reserves have purportedly increased by 30% despite the plunge in gold deliveries in the six months to June 2024 and on a month-on-month basis. Despite gold prices having increased by 16% year-to-date, production volumes have eased over the 6-month period ended in June 2024 compared to the previous 2 years.

In the 6 months between January 2024 and June 2024, gold production deliveries to Fidelity Printers came in at 13.8 tonnes compared to 14.2 tonnes in the corresponding period last year. This discrepancy raises questions about the actual reserves available versus the reported figures.

Through the strategic sale of its reserve holdings, the government can augment the supply of foreign currency in the official marketplace, thereby narrowing the disparity between the official and parallel market exchange rates.

However, the efficacy of this approach is contingent on the veracity of the reported reserve figures. Should there be a discrepancy between the actual and reported reserves, the intended impact of the intervention may be undermined.

Concurrently, the government has resorted to a more heavy-handed approach, cracking down on illicit currency exchange activities.

The inability to leverage gold reserves to bolster the intervention efforts can be attributed to the inadequacy of the available reserves. As outlined in the previous issue of The Axis, the reserves accrued over the six-month period to June, factoring in a 50% cash settlement, should have amounted to 0.2 tonnes, valued at approximately US$11 million.

The contribution from other mineral exports during the five-month period to May could have generated an equivalent of US$6 million, culminating in a cumulative reserve value of US$18-US$20 million. This figure, when added to the March estimate of US$137 million, would have resulted in a total reserve position of merely US$160 million, rather than the reported US$370 million.

It is during these periods of heightened market volatility that such gaps in the reported and actual reserve positions are exposed, highlighting the need for greater transparency and accountability in the management of the nation's financial resources.