AUTHOR : LLOYD MAHACHI

Zimbabwe’s central bank has taken drastic measures to address the struggling gold-backed currency, ZiG, by devaluing it by 43% against the US dollar and raising interest rates from 20% to 35%. The move aims to combat persistent weakness in the ZiG and restore confidence in the nation’s latest bid to create a viable local unit.

The Reserve Bank of Zimbabwe’s decision was announced on Friday, with the benchmark policy rate increasing to 35% from 20%. The ZiG, now trading at 24.4 per dollar, down from 14 per dollar earlier in the day, has faced significant challenges since its introduction in April 2024.

Zimbabwe’s inflation rate has been a major concern, increasing to 57.50% in April from 55.30% in March 2024. The ZiG, a digital currency backed by Zimbabwe’s gold reserves, aims to limit the money supply and prevent excessive inflation.

The country’s economic struggles began in the 1990s due to mismanagement, corruption, and controversial land reform policies. Zimbabwe’s history of hyperinflation, which peaked at 79.6 million percent in November 2008, has led to widespread skepticism about the ZiG’s success.

The key implications of this decision include increased borrowing costs for businesses and individuals, potential reduction in inflationary pressures, and uncertainty surrounding the ZiG’s long-term viability. However, challenges remain, including restoring confidence in the ZiG, managing competition with foreign currencies, and ensuring adequacy of gold reserves.

Ultimately, the success of the ZiG hinges on transparent and stable economic management. Only time will tell if Zimbabwe’s latest attempt at a viable local currency will succeed.

EDITED BY : JOSEPHINE MAHACHI