Zimbabwe’s new currency depreciates despite official bravado and crackdown

Despite assurances from the Reserve Bank of Zimbabwe (RBZ) governor Dr John Mushayavanhu and a crackdown on alleged currency manipulators, Zimbabwe’s new gold-backed currency, the ZiG, faces a rocky start as it experiences depreciation and skepticism.

Experts remain concerned about the ZiG’s stability due to a fixed exchange rate and a lack of market-driven buying.

Threats from Zimbabwe’s Vice President, Constantino Chiwenga, and a sting operation launched against money changers across the country are not solving the problem.

Chiwenga, this week, vowed to crack down on speculators attempting to manipulate ZiG’s exchange rate.

“Speculators somewhere jumping around trying to play around in the supermarkets, we know. Behave, or you get shut down, or we will lock you up. Two things,” he declared firmly.

The Reserve Bank of Zimbabwe (RBZ) launched the ZiG on April 8th, 2024, replacing the Zimbabwean dollar that had suffered from hyperinflation. The ZiG is backed with a basket of precious metals, including gold and foreign currency reserves.

Bloomberg news yesterday reported that ZiG had seen its first depreciation since launching earlier this month. The value dropped nearly 1% against the US dollar, mirroring a decline in global gold prices.

RBZ governor Dr Mushayavanhu, however, downplayed the depreciation of ZiG, attributing it to the gold price fluctuation and insisting the ZiG is “on track for stability.”

He added that: “The exchange rate is not going to move. In fact, if you look at what has been happening from April 5, ZiG has been strengthening.”

Despite Mushayavanhu’s assurances, some experts remain skeptical. Economist Tinashe Murapata pointed out that the current market for ZiG is not based on willing buyers and sellers but on a fixed exchange rate set by the RBZ.

He questioned the central bank’s decision to target supermarkets allegedly selling above the official rate, suggesting it amounts to price control.

“The operation thus far of the interbank market is not willing buyer willing seller but a fixed exchange rate at 13.56. Instead of using its reserves to defend ZiG, RBZ has chosen NNCD’s to suck liquidity out of the marketplace,” he said.

“Supermarkets, contrary to WBWS rules, are forced to trade at the fixed exchange rate, which in effect is price control. If RBZ has gold reserves, why do they care that a supermarket is trading at 21?

“Think about it, it doesn’t affect their balance sheet, and the loss is on the supermarket if the market rate is 13.56.

“Furthermore, the wanton arrest of money changers is a charge for not using the FIXED exchange rate. Why should RBZ care? What is Willing Buyer Willing Seller?

“RBZ should be confident in their reserves and allow the market to trade. When there was a shortage of cement traders, they were not arrested but actually pointed to the market supply challenges. No one was arrested, the supply constraints were addressed.

“Imagine PPC abusing the police to arrest without bail cement traders selling cement above the PPC price?

“The behaviour of RBZ is heightening speculation that the Reserves are not there. RBZ must address this as defined by its mandate.”

Adding to the concerns, former cabinet minister Walter Mzembi offered a blunt assessment. “If we stop pretending that ZiG is market driven and start embracing it as a Command Currency with a fixed Exchange Rate, we will stress less until reality checks in,” he remarked.

Experts are also continuing to urge the Zimbabwean government to defend ZiG on the open market by allowing it to buy everything, including fuel.

Against this background, Mushayavanhu said fuel pricing in ZiG was being negotiated with suppliers and the outcome of the meetings will soon be made public.

“On the issue of ZiG buying petroleum products, we are currently seized with negotiations with players in the industry to have that happen.

“But we should also be aware that those players in that industry are also corporate citizens, come June they also have to remit their QPDs (Quarterly Payment Dates) in ZiG,” Mushayavanhu said.