KEY POINTS
- ZiG has depreciated by 50% due to inflationary pressures.
- A lack of trust in the gold-backed currency fuels instability.
- The widening gap between official and black market rates raises concerns.
The bolívar of Venezuela is the poorest currency in the world, with Zimbabwe’s ZiG currency coming in second, according to internationally recognized economist and currency expert Steve Hanke.
ZiG loses 50% of its value in 10 months
Hanke’s most recent analysis indicates that inflationary pressures have caused the ZiG to lose 50% of its value relative to the US dollar during the last ten months. The Ethiopian birr and Iranian rial, which were voted third and fourth worst, lost 24% of their value, while the bolívar fell 52%. One of the main reasons for ZiG’s decline has been identified as a lack of confidence in the gold-backed company.
Government struggles to enforce official exchange rate
Many firms are not following a government mandate that requires transactions to be made at the official exchange rate of $1:ZiG26 because of Zimbabwe’s informal economy. The Reserve Bank of Zimbabwe has reaffirmed its commitment to stabilizing the ZiG, which coincides with the currency’s ongoing volatility.
According to New Zimababwe, critics contend that by not requiring the money to be used for necessities like fuel purchases and passport fees, the government has not generated enough demand for it. The ZiG is still susceptible to market pressures and speculation in the absence of wider adoption.
“At this time, there are sufficient use case scenarios for ZiG,” Reserve Bank Governor John Mushayavanhu stated in a recent meeting with Zimbabwe’s Tourism Business Council.
The ZiG, which was first introduced last year at a $1:ZiG2.50 exchange rate, has drastically declined in value and is currently trading on the illicit market between ZiG33 and ZiG40. Concerns over the currency’s long-term sustainability have been highlighted by the growing discrepancy between official and black market rates, and analysts caution that further instability may further undermine trust in Zimbabwe’s financial system.
