Zimbabwe’s central bank has injected $190 million into the foreign-exchange market since the introduction of the ZiG (Zimbabwe Gold), a new bullion-backed currency. This strategic move aims to stabilize the economy and meet the growing demand for US dollars, according to a member of the monetary policy committee.
The ZiG, introduced in April, is backed by reserves of gold, precious metals, and cash held at the Reserve Bank of Zimbabwe (RBZ). This new currency is a critical component of Zimbabwe’s broader strategy to reduce its reliance on the US dollar by 2026.
“At the outset, there was little need for intervention when ZiG was launched,” said Persistence Gwanyanya in a phone interview on Monday. “However, as volatilities emerged, indicating a reduction in dollarization from 85% to 60% in the economy, the central bank had to step in.”
To address the heightened demand for dollars, the central bank announced a $50 million injection into the market in late July. This intervention is part of the RBZ’s broader efforts to stabilize the local currency and curb excessive dollarization.
The funds used for these interventions were sourced from foreign-exchange proceeds collected from exporters, as confirmed by RBZ Governor John Mushayavanhu last week.
Since 2009, Zimbabweans have predominantly used US dollars for everyday transactions, following the collapse of the national currency due to hyperinflation triggered by a failed land-reform policy. The introduction of ZiG marks the country’s sixth attempt in 15 years to establish a stable local currency.
“Dedollarization is occurring more rapidly than anticipated,” Gwanyanya noted. “While this brings certain challenges, it is crucial that we manage these pressures effectively.”
Currently, the ZiG trades at 13.86 per US dollar on the official market, according to data released Monday on the RBZ’s website. However, on the streets of Harare, the capital, the US dollar fetches between 16 and 26 ZiG, according to ZimPriceCheck.Com, a platform tracking both official and unofficial exchange rates.
Expanded Analysis:
This move by Zimbabwe’s central bank to inject $190 million into the foreign-exchange market reflects the delicate balancing act needed to stabilize the economy during the transition to a new local currency. Investors who had an eye on Zimbabwe’s volatile currency markets could have recognized an opportunity here. Those who anticipated the central bank’s intervention might have positioned themselves to capitalize on the initial stability the injections provided, although the broader challenges of dedollarization remain.
The difference between the official and street exchange rates signals ongoing skepticism about the ZiG’s strength and stability. Savvy investors and traders could have profited from these discrepancies by trading in different markets, although such activities carry significant risks due to potential government crackdowns and market volatility.
Looking forward, the RBZ’s ability to maintain confidence in the ZiG will be critical. The success of this currency could set the stage for further economic reforms and potential investment opportunities as Zimbabwe seeks to reduce its reliance on the US dollar.
