Zimbabwe’s bullion-backed ZiG currency has significantly depreciated by 95% against the dollar since its launch. Despite a 24% rally in gold prices, liquidity issues and strict monetary policies hinder the currency’s performance. The central bank’s efforts to stabilize the economy result in a tight monetary environment, affecting overall financial dynamics and limiting the ZiG’s advantages from gold increases.
Zimbabwe’s bullion-backed currency, the ZiG, launched on April 8, is currently unable to capitalize on an impressive 24% rally in gold prices due to a significant liquidity squeeze affecting the economy. Simultaneously, the local currency has depreciated by 95% against the US dollar, exacerbating the financial strain on the economy. Shelton Sibanda, Chief Investment Officer at Imara Asset Management, notes that market players are monitoring money supply rather than gold prices.
The central bank has implemented strict monetary policies, maintaining interest rates at 35% since a 43% devaluation of the ZiG in September 2022, focused on stabilizing the currency. This policy has had negative implications for stock performance. Governor John Mushayavanhu stated that such a tight policy is necessary to enforce market discipline and mitigate speculative activities.
Challenges remain in converting ZiGs to US dollars, raising concerns about the currency’s viability. Overall, these challenges highlight Zimbabwe’s lack of adequate foreign currency reserves to support a stable, convertible currency. Despite these issues, valuable assets are accrued in the form of increased gold reserves, which have grown from 1.5 tons to 2.67 tons since the introduction of the ZiG.
The ZiG faces considerable obstacles in benefiting from the rising gold prices due to a liquidity crunch and exchange difficulties with the US dollar. The central bank’s tight monetary policies are aimed at stabilizing the economy but have resulted in a weakened local currency. Despite challenges, Zimbabwe’s gold reserves have increased, representing a slight compensatory advantage amidst ongoing economic turmoil.
Original Source: www.newzimbabwe.com
