Zimbabwe's ZiG Currency Takes a Hit: RBZ Governor Tries to Explain
"The ZiG is designed to reflect the movement in the prices of reserve assets backing it and the inflation differentials" - Dr John Mushayavanhu, RBZ Governor
ZiG Currency Takes a Hit: RBZ Governor Tries to Explain
Harare, Zimbabwe – The Reserve Bank of Zimbabwe (RBZ) Governor, John Mushayavanhu, has addressed growing concerns over the sharp decline in the value of the Zimbabwe Gold (ZiG) currency. Despite a global rise in gold prices, the ZiG has plummeted by a staggering 44%, from 13.99 to 24.39 per US dollar since its introduction in April.
In a recent interview, Dr. Mushayavanhu explained that the ZiG's value is closely tied to both gold prices and inflation rates in Zimbabwe and the US. While gold prices have been on the up, Zimbabwe's high inflation has taken a toll on the currency.
Zimbabwe Devalues New Gold-Backed ZiG Currency by 44%
“The ZiG is designed to reflect the movement in the prices of reserve assets backing it and the inflation differentials,” he said. This means that the currency's value should ideally mirror the fluctuations in Zimbabwe's gold reserves and the inflation differences between the ZiG and the US dollar.
ZiG Currency Takes a Hit: RBZ Governor Tries to Explain
However, despite the firming gold prices, Zimbabwe's rising inflation has negated any potential gains. Dr. Mushayavanhu highlighted that the month-on-month inflation was 1.4% in August 2024 and jumped to 5.8% in September 2024, contributing to the ZiG's depreciation.
He also stressed the need for a price discovery mechanism to allow the ZiG's exchange rate to adjust according to current economic conditions. This mechanism aims to counteract the effects of excess liquidity in the economy, helping to stabilize inflation expectations and reduce inflation differentials in the future.
“The exchange rate movement is expected to act as a critical shock absorber for the prevailing excess liquidity, ensuring the currency remains aligned with macroeconomic dynamics,” Dr. Mushayavanhu concluded.
As Zimbabwe faces these economic challenges, the RBZ remains committed to adapting its monetary policy to stabilize the ZiG and support the nation's financial framework.
