Zimbabweans Lose Confidence in ZiG as Currency Devalues

Zimbabwe’s Justice, Legal, and Parliamentary Affairs Minister Ziyambi Ziyambi has acknowledged growing mistrust among citizens towards the Zimbabwe Gold (ZiG), a gold-backed currency introduced in April 2024. This lack of confidence has contributed to the ZiG’s significant devaluation, with its value plunging to ZiG25.2 on the interbank market and trading as high as ZiG43 on the parallel market.

Currency Backed by Gold, Yet Struggling

Minister Ziyambi highlighted that when the ZiG was launched, it was supported by US$430 million in reserves, which should have stabilized its exchange rate at around ZiG25. However, public skepticism and preference for the U.S. dollar have driven speculation, further weakening the currency.

“The issue that we suffer from as a country is largely a question of confidence,” Ziyambi explained while addressing the Senate. He pointed out that even though the ZiG is backed by gold, speculation and a lack of faith in the local currency are eroding its value.

Speculation Driving Inflation

Ziyambi compared the current economic climate to 2009, when dollarization brought economic stability and eliminated inflation due to renewed public trust. “Back then, confidence alone ensured there was no inflation. Now, despite having reserves, our currency fluctuates because of the mistrust,” he remarked.

The government devalued the ZiG by 43% in September, raising its official exchange rate from ZiG13.9 to ZiG24.4 per U.S. dollar. Despite these measures, the parallel market thrives, and inflation continues to bite. Bankers have warned that large-scale devaluations could further erode public trust and called for smaller, more gradual changes to the exchange rate to stabilize the economy.

Measures to Restore Confidence

Ziyambi stated that the government is working to rebuild trust and mitigate the impacts of speculation. He emphasized that increasing reserves and stabilizing the exchange rate are essential for addressing “Zimbabwean inflation,” a term he used to describe the country’s unique, trust-driven economic challenges.

“We believe that it is this panic in the population that we need to cure,” Ziyambi said. “Once all of us have confidence in our currency, inflation caused by speculation will diminish.”

A History of Instability

The ZiG marks Zimbabwe’s sixth attempt at establishing a stable currency in the past 15 years. Despite its gold backing, the currency’s future remains uncertain as public skepticism continues to undermine government efforts. Analysts argue that without comprehensive measures to rebuild trust, the ZiG may face the same fate as its predecessors.

Restoring confidence in the ZiG is critical for addressing the ongoing economic challenges. However, as the currency’s devaluation accelerates, achieving stability will require not only economic reforms but also a significant shift in public sentiment towards trusting Zimbabwe’s monetary system.