Zimbabwe’s central bank has announced a dramatic devaluation of its gold-backed currency, the Zig, by more than 40% against the US dollar, signaling deepening troubles in the nation’s efforts to stabilize its volatile economy. The Reserve Bank of Zimbabwe (RBZ) adjusted the local exchange rate to 24 Zig for every US dollar, equivalent to approximately £0.75, on Friday.
This significant decline comes in response to a rising demand for the US dollar, which continues to serve as legal tender in Zimbabwe. The move follows alarming warnings from major retailers about potential store closures if the exchange rate remained fixed at its previous level.
Launched just over six months ago, the Zig represents Zimbabwe’s sixth currency in the past 25 years, marking another attempt by the government to establish a stable monetary system. According to the RBZ, the decision to devalue the currency was made by its Monetary Policy Committee, aiming to allow for greater exchange rate flexibility and to mitigate emerging exchange rate risks. The central bank stated that these measures were intended to anchor inflation expectations and stabilize prices in the near term.
While the Zig appeared to maintain its value initially following its launch, it has suffered significantly on the black market, where many businesses obtain US dollars. Reports indicate that the Zig has lost more than half of its value in unofficial trading, underscoring the challenges the government faces in weaning its citizens off reliance on the US dollar.
Historical mistrust in the central bank looms large in Zimbabwe, rooted in the catastrophic hyperinflation of 2008 when the government resorted to printing 10 trillion Zimbabwe dollar notes. This period of financial chaos has left a lasting impact on the population, fostering skepticism towards government monetary policies.
The current economic situation reflects ongoing struggles within Zimbabwe’s financial landscape, characterized by high inflation rates and a lack of viable currency alternatives. Many Zimbabweans continue to view the US dollar as a more stable and trustworthy option for transactions, leading to persistent difficulties for the RBZ in gaining public confidence in its new currency.
As the government grapples with these challenges, the implications of the devaluation may further complicate efforts to stabilize the economy and address the underlying issues contributing to its volatility.
