Zimbabwe gold makes currency history

Welcome Mavingire, managing consultant at INTELLEGO Investment Consultants, has hailed the Zimbabwe Gold (ZiG) currency's recent stability as the longest sustained period for a domestic currency in the country's recent history. Speaking at the 11th annual convention of the Actuarial Society of Zimbabwe in Nyanga, Mavingire emphasized the significance of this stability amid Zimbabwe's ongoing economic struggles.

The ZiG currency was introduced on April 5, 2024, following the government's decision to abandon the Zimbabwe dollar in its sixth attempt over more than a decade to establish a stable local currency. From its debut until September 27, the ZiG remained relatively stable before a notable devaluation from US$1:ZiG13.99 to US$1:ZiG24.39. Authorities explained the move as necessary to allow "greater exchange rate flexibility in line with increased demand for foreign currency in the economy." Since then, the ZiG has experienced minor fluctuations, currently trading at about US$1:ZiG26.83 on the official market.

Despite this, a significant discrepancy exists on the parallel market, where the US dollar trades at approximately 1:ZiG36, leading to suspicions that the official exchange rate is managed—a claim the Reserve Bank has denied.

Mavingire noted, "We have seen a lot of stability, especially in the economic variables, and most of that is driven by our local currency stability. The Zimbabwe Gold has been very stable since the beginning of the year. In recent times, this is probably the longest stretch where we have been getting stability in our local currency."

However, he warned that the economy remains vulnerable to shocks, including sudden inflation spikes, often driven by psychological factors. "Everyone, even with this stability, fears that at any moment it might collapse," Mavingire explained.

He also highlighted the challenges posed by Zimbabwe's highly informal economy, where many transactions occur outside the official banking system, making it difficult to track or regulate economic activity effectively.

On the growth outlook, Mavingire projected a 6% expansion for Zimbabwe this year, driven primarily by a resurgence in agriculture and increased mining output. "This year's growth estimate is more tangible, especially since the government has secured agreement on this figure with international institutions such as the IMF, World Bank, and African Development Bank," he said. "The major drivers are coming off a low base, as last year experienced very slow growth."

Mavingire cautioned, however, that tight monetary policies have led to a liquidity crunch, which could accelerate the re-dollarisation trend. He observed that while some companies benefit from currency volatility, sustained stability has contributed to corporate failures over the past six months. This has been compounded by easier access to corporate rescue mechanisms.

"The impact on the markets has been subdued, with the stock market showing signs of weakness but also some recent strength," Mavingire concluded.

The Zimbabwe Gold currency's unprecedented period of stability offers hope for economic recovery, but the path ahead remains fraught with challenges requiring careful management and vigilance.