The state of Zimbabwe's gold currency

Zimbabwe's gold-backed currency, ZiG, launched on April 5, 2024, has been facing significant challenges as it depreciates against the US dollar, currently trading at 26.4 ZiG per USD as of February 2025. Despite a notable 87 per cent increase in gold and forex reserves to $550 million, the instability of the ZiG continues to have a lasting impact on the country's economy and various sectors. In a recent interview with Humphrey Machukuche, CEO of eShandi Zimbabwe, on CNBC Africa, insights were shared on the root causes of ZiG's depreciation, its impacts on sectors beyond retail, the looming threat of re-dollarization, policy options for restoring confidence, and the regional economic implications of the crisis. The discussion also delved into potential relief measures and the importance of building robust reserves to stabilize the currency. The significant decline in the value of the ZiG has been attributed to various factors, including excessive money supply stemming from new market projects initiated by authorities, leading to inflation. Additionally, shortages of foreign exchange in formal markets forced reliance on informal sources, driving up exchange rates and contributing to the currency's depreciation. The lack of trust in ZiG and increasing dollarization further compounded the challenges, causing liquidity issues in businesses and a slowdown in economic activities. Beyond the retail sector, the depreciation of ZiG has permeated through all facets of the economy, with businesses grappling with liquidity constraints and a general decline in public transactions. The reliance on foreign currency due to a lack of confidence in ZiG has resulted in a shift towards dollar transactions in Zimbabwe, indicating a growing inclination towards re-dollarization, which raises concerns about the sustainability of a gold-backed currency system. The government's efforts to support ZiG, including backing it with gold deposits, have been hindered by widespread mistrust and exchange rate disparities between formal and informal markets. This lack of public confidence in the currency has impeded its adoption and acceptance, exacerbating inflationary pressures and exposing the vulnerability of ZiG. Despite the gold backing, maintaining its value has proven challenging, necessitating policy reforms and transparent monetary actions to restore faith and stabilize the currency. From a regional perspective, the ZiG crisis not only affects Zimbabwe's economic stability but also impacts regional trade, investor confidence, and integration within the SADC region. The spillover effects of currency instability can deter investment and hinder economic growth, emphasizing the need for collaborative efforts among stakeholders, including governments, financial institutions, and international partners, to bolster ZiG's stability and support economic confidence in the country. Looking ahead, potential relief for ZiG may come from tighter money supply policies and interventions to narrow the gap between market rates. Measures like the introduction of willing buyer-willing seller currency in the banking sector aim to stabilize the currency, but sustained efforts, such as increasing exports and building robust foreign currency reserves, will be crucial for long-term stability and economic resilience. In conclusion, the road ahead for Zimbabwe's gold-backed currency remains challenging, with the need for concerted actions to address root causes, restore public confidence, and foster regional cooperation to navigate the current crisis and pave the way for a more stable economic future.