Zimbabwe’s New Gold-Backed Currency Saw 50% Devaluation in Six Months
Six months after its launch, the gold-backed ZiG, once hailed as a remedy for Zimbabwe's currency woes, is facing a crisis of confidence.
Less than six months after Zimbabwe introduced the ZiG, or Zimbabwe Gold, as its latest currency, the Southern African country has been forced to devalue it. The move signals ongoing struggles in Zimbabwe’s efforts to establish a stable local currency and reduce its dependence on the United States dollar.
The ZiG, launched in April 2024 by the Reserve Bank of Zimbabwe (RBZ), was presented as a solution to Zimbabwe’s long-standing economic woes, including rampant inflation and currency instability. Backed by gold, the new currency was expected to restore faith in local money after years of economic turmoil. However, by late September, authorities slashed the value of the ZiG by 43 percent, highlighting the currency’s vulnerabilities.
The devaluation saw the ZiG fall from an exchange rate of 13.56 ZiG to 1 US dollar at its launch to 24.4 ZiG to the dollar by September. By October 23, the rate had further weakened to 27 ZiG per dollar. On the black market, the currency’s value was even lower, trading between 40 and 50 ZiG to the dollar, according to Zim Price Check, a price monitoring website.
This gap between official and black market rates has exacerbated the challenges for local businesses. Many retailers, forced to trade at the official rate, have warned authorities they may shut down if the rate differences are not addressed. The disparity has undermined confidence in the new currency and raised concerns about the sustainability of Zimbabwe’s latest monetary experiment.
The introduction of the ZiG is one of several attempts by Zimbabwean authorities to create a stable local currency since the Zimbabwe dollar (Zimdollar) collapsed in 2009. The country abandoned the Zimdollar at the height of a hyperinflation crisis that saw the currency become virtually worthless. At its lowest point, the Zimdollar traded at 30,000 to 40,000 per 1 US dollar, and prices of basic goods like bread skyrocketed, with a single loaf costing 500 million Zimdollars.
The hyperinflation crisis, which reached a staggering 79 billion percent inflation rate, was driven by years of economic mismanagement, corruption, and international sanctions. Under the leadership of former President Robert Mugabe, Zimbabwe’s government resorted to printing money in an attempt to ease the crisis, but this only worsened the situation. Citizens lost their life savings, and by 2009, Zimbabwe had no choice but to scrap its local currency and adopt the US dollar as legal tender.
In 2019, the Zimbabwean government reintroduced the local currency, but three-digit inflation rates persisted. By the time the ZiG was launched in 2024, the economy remained heavily dependent on the US dollar, with around 85 percent of transactions being conducted in the foreign currency.
The ZiG was supposed to break this dependence. Its value was anchored on a combination of foreign currencies, gold, diamonds, and other precious stones in Zimbabwe’s reserves. When the currency was introduced, RBZ Governor John Mangudya highlighted that Zimbabwe had 1.1 tonnes of gold worth US$175 million and US$100 million in foreign currency reserves to back the new currency. Zimbabwe, which holds significant gold deposits, has relied heavily on the precious metal for exports, with gold accounting for nearly 25 percent of all exports in early 2024.
However, despite the government’s assurances, the ZiG has struggled to gain widespread acceptance. The devaluation reflects the ongoing inflationary pressures, worsened by a severe drought in the region that has strained the economy further. Although the ZiG was designed to stabilize Zimbabwe’s financial system, many citizens remain skeptical about its long-term viability.
While some economists believe it is too early to fully assess the performance of the ZiG, the currency’s initial struggles have raised doubts about whether it can succeed where previous monetary reforms have failed. Zimbabwe’s population of 16 million people continues to face economic hardship, with many relying on foreign aid to survive. The enduring inflation and currency instability make it difficult for businesses and individuals to plan for the future.
As Zimbabwe’s central bank grapples with these challenges, it remains to be seen whether the ZiG can restore confidence in the country’s financial system or if Zimbabwe will continue to depend on the US dollar to navigate its troubled economic landscape. For now, the ZiG’s performance remains uncertain, and the path forward for Zimbabwe’s currency remains fraught with difficulties.
