Zig Began Trading at 13,56 Now Officially at 27,6 equivalent to 40 on Black Market

By Ross Moyo

The Zimbabwe Gold (Zig) local currency initially Started Trading at 13,56 to the USD$ and Now Officially is at 27,6 to the greenback losing twice the same value it was introduced on the market with also equivalent to 40 on the parallel Black Market which has worried industry investors and leading Zimbabweans to wonder what is next for the Zimbabwe ZiG exchange rate in this fiscal year.

These are genuine concerns by Zimbabwe citizens after its Central Bank Reserve Bank of Zimbabwe (RBZ) introduced the ZiG in April last year as it sought to create a stable currency. The fear, nevertheless , is that most people and businesses will avoid the currency since they have lost money before.

It is no longer news that the Zimbabwe ZiG currency has crashed for several reasons, First, despite the central bank’s efforts, Zimbabwe is still a dollar-based economy, with the currency being used in over 80% of transactions.

Second, many Zimbabweans are, rightfully, afraid of holding a local currency following the past implosions. The country has had five currencies in the past decades, all imploding.

The country’s citizens fear that the gold-backed ZiG currency would crash which was confirmed last year when the central bank devalued the currency by 40%, leading to instant losses among those who held it.

Zimbabweans avoiding the ZiG is a notable fact because of the high interest rates the RBZ is offering which raised interest rates to 35%, creating an instant carry trade opportunity, where investors borrow money in a low-interest-rate currency to invest in a higher-yielding one.

One can borrow the US dollar and pay about 5% and then invest in the ZiG, generating a 30% return only in Zimbabwe and as one analyst affirmed in a recent note, monetary policy will not fix the Zig, saying:

“Monetary policy won’t fix Zimbabwe’s problems and the government needs to generate more revenue and control deficit spending to get the economy on track.”

The Zimbabwe ZiG currency faces a grim future with the official ZiG currency having crashed to 27.6 hence unofficial exchange rate has also moved to 40 against the US dollar.The currency faces an uphill future despite high interest rates and ZiG currency has remained under pressure this year despite some bullish tailwinds for the economy. With The official USD/ZWG exchange rate listed at 27.6 by the central bank, while the black market rate stands at 40, This performance marks a major deterioration for a currency that started trading at 13.56 against the US dollar in April last year confirming Zimbabwe in economic tailwinds.