Zimbabwe’s new currency, the ZiG, has experienced a depreciation of over 40% after the country’s central bank made recent adjustments aimed at aligning official exchange rates with parallel market rates.
On Friday, Zimbabwe’s central bank decided to raise the official exchange rate from 14 to around 24 ZiG per dollar, aiming to narrow the significant gap between the official and parallel market rates.
Launched in April to replace the rapidly depreciating Zimbabwean dollar, which saw a staggering loss of 80% of its value throughout 2024, the ZiG has faced considerable challenges in achieving stability.
The country’s central bank attributes the instability to the wide gap between the official exchange rate and parallel market rates, as the government seeks to discourage the use of alternative currencies such as the US dollar and cryptocurrencies.
Sekai Kuvarika, the CEO of the Confederation of Zimbabwean Industries, publicly criticized the central bank for maintaining an artificially low official exchange rate for an extended period.
She argued that this has resulted in a significant parallel-market premium, which has caused serious distortions in the economy.
”This has also worsened the situation, which could have been improved by accepting that the parallel market also needs to be reined in”
According to Central Bank of Zimbabwe
In a statement released after a recent meeting of its Monetary Policy Committee, the Central Bank of Zimbabwe announced its decision to allow for greater flexibility in the exchange rate.
The government’s objective with this devaluation is to reduce the disparity between the official exchange rate and that of the parallel market. This latest attempt at establishing a stable local currency marks Zimbabwe’s sixth effort since 2009.
However, the challenge is compounded by ongoing supply and demand issues that have hindered the currency’s performance.
According to the Governor of Zimbabwean’s Central bank, John Mushayavanhu, “Foreign currency supply-and-demand mismatches” are to be blamed.
He also stated that the Central Bank was committed to an exchange rate that was more market-determined. “Allowing the ZiG to depreciate if that is what market sentiments demand could also help reverse the currency’s decline.”
Market Trend
- Since its inception on April 8, 2024, the ZiG initially traded at around 12 ZiG per dollar but quickly fluctuated between 13 and 14 in the subsequent months.
- Before the central bank’s actions on Friday, the parallel market rate ranged from 18 to 25 ZiG, but the official rate has now been set at 24 ZiG per dollar following this significant devaluation.
This adjustment aims to create a more balanced economic landscape and foster confidence in the new currency.