ZiG Woes: Trust in Gold-Backed Currency Fading Amid Devaluation

In Zimbabwe’s economic landscape, the devaluation of the ZiG has sparked widespread concern, as faith in the country’s gold-backed currency wavers. The recent discussions in Parliament highlight just how delicate the situation has become.

Despite the soaring global price of gold, the ZiG has continued to lose value, casting a shadow of doubt on its initial promise as a stable, reliable currency.

On September 27, the ZiG depreciated to US$1:ZWG24,39, from its prior rate of US$1:ZWG13,99. This decline has continued, with the currency trading at ZiG26,6535 on the interbank market by mid-October.

The ZiG, introduced in April 2024, was hailed as a major step toward stabilizing Zimbabwe’s currency, backed by substantial gold and foreign currency reserves. Yet, its performance since has left many questioning the practicality of relying on it as a store of value.

The volatility of the ZiG has been a recurring theme, as lawmakers like Cobarn Madzivanyika of the Citizens Coalition for Change voiced concerns over the currency’s steep devaluation. Despite the Reserve Bank of Zimbabwe (RBZ) assuring citizens that the ZiG was backed by US$450 million in foreign reserves, the exchange rate’s erratic behavior suggests deeper structural issues.

Madzivanyika’s criticism centered on the seeming contradiction between the rising global price of gold and the falling value of the ZiG, highlighting a critical challenge facing Zimbabwe’s monetary policy.

One of the most pressing questions is how Zimbabweans can trust the ZiG when its value appears increasingly unstable. The idea of gold-backed currency traditionally inspires confidence, but as the ZiG’s value plummets, skepticism grows.

Minister of Justice, Legal, and Parliamentary Affairs Ziyambi Ziyambi tried to quell fears by insisting that the currency remains backed by reserves of gold, foreign currency, and other precious minerals. According to Ziyambi, the reserves amount to approximately US$400 million, a figure meant to assure the public that the currency is still secure.

However, this reassurance does little to alleviate concerns about the currency’s future. The mechanics of how a gold-backed currency should function are clear: stability should be its hallmark. But the ZiG’s swift depreciation has led many to wonder if the reserve system underpinning it is robust enough to withstand the pressures of Zimbabwe’s volatile economy.

The contradiction between the rising price of gold and the falling value of the ZiG is hard to ignore. It raises deeper questions about how Zimbabwe is managing its monetary policy and what steps need to be taken to stabilize the situation.

Ziyambi explained that the backing of the ZiG is not the same as pegging its value to gold, suggesting that the government retains control over the money supply and is not flooding the market with excess currency. His defense, though, fails to fully address the complexities of the situation.

The key problem remains: despite its gold backing, the ZiG continues to slide, and citizens continue to lose confidence in its value as a store of wealth.

It is not just opposition lawmakers like Madzivanyika raising the alarm. Even Zanu PF legislators, such as Itai Ndudzo, have called for more comprehensive explanations from Finance Minister Mthuli Ncube.

Ndudzo’s concerns center around the devaluation’s impact on ordinary Zimbabweans—pensioners, war veterans, civil servants, and others who rely on local currency for their livelihoods. With the ZiG losing 44% of its value in a short span, the economic shockwaves are hitting those least equipped to absorb them.

Calls for a detailed ministerial statement are not just about explaining the problem; they’re about seeking solutions. Zimbabwe needs a clear path forward. Whether that involves adjusting how the ZiG is backed, reevaluating monetary policy, or introducing new fiscal measures remains to be seen.

What is clear, however, is that the current approach is leaving many Zimbabweans vulnerable to further economic uncertainty.

If the government cannot restore confidence in the currency, it risks undermining any potential benefits from its gold-backing strategy. As discussions continue in Parliament, the pressure is mounting on policymakers to take decisive action to stabilize the currency and protect the Zimbabwean public from further economic harm.

The Zim Bulletin