Zimbabwe's ZiG gamble backfires?

In late May, monitoring the ZiG currency against other currencies revealed a divergence between the government-regulated exchange rate and the market-determined parallel rate.

Introduced on April 5, 2024, at ZiG13.56 to the US dollar, the official rate appreciated slightly to ZiG13.3177 by May 31, a modest 2% gain. However, the ZiG cannot be used for many basic necessities, such as rent, passport fees, and airline tickets, which still require US dollars.

This raises concerns about the actual demand for the ZiG.

The government has artificially pegged the official exchange rate, undermining public confidence and fueling the informal foreign exchange market.

The central bank's $285 million reserves seem insufficient to meet the demand for US dollars, leading businesses and individuals to the parallel market, where the ZiG has depreciated significantly.

On peer-to-peer platforms, the ZiG trades at 19-21 per US dollar, a 36% depreciation, while broader parallel markets show a 43% depreciation, with rates between 21-23 per US dollar.

This stark contrast highlights the government's failure to maintain the currency's value. Efforts to curb the parallel market through police crackdowns have been ineffective, as the informal economy and basic needs drive the demand for foreign currency.

The government's approach has led to a disconnect between the official and parallel exchange rates, reflecting a lack of confidence in the ZiG.