• Declining Value: ZiG has dropped 0.2% week-on-week, with cumulative losses reaching 2%
• Confidence Erosion: The inability of the ZiG to effectively serve as a medium of exchange for essential services has led to increased demand for US dollars and a widening confidence deficit
• Government Response: While the government has cracked down on illegal money changers, a lack of market confidence and the need for a floating exchange rate remain critical for stabilizing the currency

Harare- Zimbabwe Gold (ZiG) traded at 13.8388 on the 29^th August 2024, up from 13.8076 on August 22, extending its weekly declines into months.

In the latest trade, the ZiG exhibited a week-on-week drop of 0.2%, with cumulative losses amounting to 2%.

The ZiG appears to be an unfortunate currency, performing on par with Bond Notes.

Both currencies have struggled to address critical issues such as purchasing fuel, paying for rentals, and passports.

This has diminished demand for the local currency, while increasing demand for US dollars.

The inability of the ZiG to serve as a medium of exchange for these essential services has widened the confidence deficit in the currency.

The government has taken a hardline approach against illegal money changers, imposing penalties that can lead to imprisonment.

While arresting illegal street money changers may be a viable method to reduce exchange rate disparities and restore order in currency markets, the growth of the parallel market indicates a rising demand for US dollars to fulfill duties that the local currency cannot cover.

Thus, government crackdowns may be akin to merely putting a bandage on a more severe issue.

To stabilize the ZiG, the government needs to build gold reserves, manage the money supply, allow the exchange rate to float, and start accepting ZiG for critical payments.

The mid-term budget has introduced several tax reforms to be collected in ZiG unless otherwise specified.

However, the "unless" clause holds significant power in potentially shifting the tide in the ZiG's favour.

Currently, the ZiG is trading at 13.83 against the US dollar and  24 per dollar in the parallel market, creating a premium of 74%, with some informal players quoting rates as high as 26 ZiG per dollar.

The market imbalances observed in the parallel market suggest that reserves may not be at the purported levels.

Such disparities highlight a heavily regulated exchange rate market, which ultimately risks suffering a painful collapse.

ZiG will fail without market confidence, a floating exchange rate, and adherence to economic principles such as supply and demand.

Imprisoning dissenters will not foster the necessary confidence on its own.

The expanding exchange premium for the ZiG is reaching levels reminiscent of the collapse of the Zimbabwe dollar.

Establishing a transparent and independent system for verifying gold reserves is crucial. This will also aid the government in living within its means.

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