Zimbabwe’s central bank governor has sought to reassure citizens that the newly introduced gold-backed currency, the ZiG, will not suffer another steep devaluation, Bloomberg reports.
However, the currency has already weakened significantly since its launch, raising concerns about its stability.
The ZiG was devalued by 43% on September 27, bringing the official exchange rate to 24.4 ZiG per US dollar. This followed a widening gap between the official and unofficial exchange rates. Since then, the ZiG has further weakened, reaching 26.33 per dollar on Friday. Despite this, the official rate remains significantly lower than the unofficial rate, which is currently between 40 and 50 ZiG per dollar, according to ZimPriceCheck.com.
“It was a once-off,” Reserve Bank of Zimbabwe Governor John Mushayavanhu assured citizens in an interview with the state-owned Zimbabwe Broadcasting Corporation. “We expect things to stabilize going forward and should start to see prices fall.”
The governor attributes the recent devaluation to a “once-off” situation and states that the central bank will take steps to stabilize the currency. He outlined plans to curb money supply growth by limiting credit creation by the nation’s lenders. The central bank also boasts an increase in gold and hard-currency reserves backing the ZiG to $450 million, up from $285 million in early April. Local currency deposits currently stand at 10.7 billion ZiG ($406 million).
However, past attempts at establishing a stable local currency in Zimbabwe have been hampered by hyperinflation, driven by government spending financed through printing money. These historical struggles cast doubt on the longevity of the ZiG, particularly with the ongoing gap between the official and unofficial exchange rates.
