- ZiG Devalued: Central bank has devalued ZiG to 24.39 per dollar, down from 13.9
- This devaluation is not even temporary relief as parallel is at 32 per dollar
- To achieve lasting currency stability, we have given possible solutions in the article
- Stability by force will always fail
Harare- The Government has finally devalued the Zimbabwe Gold (ZiG) to trade at 24.39 per dollar, down from 13.9 since May 2024.
As we warned in our previous articles about the ZiG, no currency can sustain a pegged rate that is not determined by the market, even if the reserves are sufficient.
This is the same path that led to the demise of the Zimbabwe Dollar, which lasted over five years.
However, the ZiG is barely six months old and is already showing signs of distress, battling for survival.
In this article, [ZiG's Downward Trajectory] (https://equityaxis.net/post/18069/2024/9/zig-s-downward-trajectory-following-its-predecessors-into-abyss-of-failure ), we highlighted that the government will ultimately be forced to devalue the ZiG to bridge the premium.
However, we also warned that this would not be a long-lasting solution, as the parallel market will continue to operate based on the principles of supply and demand.
Furthermore, devaluing to a rate of 24.39 is still significantly behind the black market rate of 32 per ZiG. With this devaluation, the parallel market will be compelled to adjust as well, perpetuating the cycle.
So, what will be the long-term solution? First, the government must abandon the pegging of the currency. The ZiG needs to be floated and determined by demand and supply metrics.
Additionally, the government must exercise fiscal discipline and manage the monetary supply responsibly. Resorting to excessive money printing, especially with disputed reserves, will only create high demand for the US dollar which are insufficient, further weakening the local currency.
The situation seen during the lead-up to the SADC summit should not be repeated. At least John the First managed to sustain the ZWL for five years; John the Second is facing a worse scenario, approaching collapse before he even begins.
Moreover, beyond fiscal responsibility and the abandonment of pegged rates, there is a need to create demand for the local currency.
A currency cannot function if it cannot be accepted as a means of payment for critical services like fuel, passports, and government taxes. If this fails, it ceases to be a currency.
At the national level, addressing corruption, revising taxes downward, and building reserves is essential. Improving the political atmosphere and implementing these measures will, in the long run, boost local production, attract investments, and stabilize the currency.
However, for now, the ZiG is merely a rebranded ZWL. It is heading towards total collapse. Such a devaluation would only provide temporary relief, failing to address the core challenges at play.
To achieve lasting currency stability, Zimbabwe must eliminate the fixed exchange rate system, adopt a rigorous monetary policy, and enforce strict fiscal discipline. Unfortunately, the government currently seems unprepared to engage in this critical conversation.
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