Zimbabwe’s ZiG is heading toward failure, not through rapid devaluation, but through growing irrelevance, according to Imara Asset Management, the country’s oldest independent brokerage.
Unlike past currency collapses, which were driven by hyperinflation, the ZiG’s downfall is being shaped by policy missteps and a prolonged liquidity crunch in its sixth month, Bloomberg reported.
The ZiG is Zimbabwe’s sixth attempt in 15 years to establish a stable local currency. Launched a year ago, it is backed by 2.5 tons of gold and $100 million in foreign currency reserves held by the central bank.
About 80% of transactions in the country are still conducted in U.S. dollars, with some also made in South African rand.
Despite its gold backing, the ZiG has failed to win public confidence. Its value has declined, and efforts by authorities to encourage widespread adoption have largely fallen flat.
Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe’s monetary policy committee, pushed back against the Imara report, stating that the liquidity issues are limited to the parallel market, and not the formal banking system.
“It’s not extinction of ZiG, but unwinding of US dollar positions into the local currency that’s next and will help release credit into the economy,” Gwanyanya said.
Still, Imara argues that the central bank’s strategy, particularly its decision to raise interest rates to support the ZiG and fight inflation, is backfiring by encouraging more people to rely on the U.S. dollar.
The Imara executives emphasized that monetary policy alone won’t solve Zimbabwe’s economic challenges. They urged the government to focus on boosting revenues and curbing deficit spending.
In a blunt conclusion, they said: “It would be better simply to scrap [the ZiG] and move on.”
