The Zimbabwe Gold (ZiG) is holding well against the US dollar as many people in the country move to the new currency. Data shows that the USD to ZiG exchange rate stood at 13.3 on Friday morning, a few points below its initial trading level of 13.56.
The Zimbabwean central bank believes that the ZiG currency has the potential to become a stable medium of exchange for the country. It has ruled out going to the old behavior of printing cash that has led to the collapse of the previous iterations of the Zimbabwean dollar.
At the same time, the bank has committed to ensure that the currency does not strengthen substantially, a move that will hurt exporters. Exporters tend to prefer a stable or a weak currency since it makes their products cheaper.
Still, some analysts believe that the future of the Zimbabwe Gold is likely doomed and that it will end as the other currencies have ended. For one, the current government is staffed by most of the leaders who were in Robert Mugabe’s administration and corruption is still rife in the country.
At the same time, the ZiG is an experiment since no other country has successfully backed its currency with other assets. ZiG is backed by 25 tons of gold, which are now valued at over $1.9 billion. It is also backed by about $100 million in foreign currency.
The government hopes to continue boosting its backed assets through royalty payments by miners. In 2023, Zimbabwe gold miners produced about 30 tons of gold, a 15% decline from the same period in 2022.
The ZiG currency sends memories of what happened to the United States in the 1970s when the country abandoned the gold standard to curb inflation. It also abandoned the standard to prevent other countries from overburdening the system by redeeming dollars for gold.
The other risk for the ZiG currency is that most people in Zimbabwe have lost their faith in the government and its numerous currencies. Those who bought the previous version of the Zimbabwe dollar lost most of their value as it crashed.
At the same time, the ZiG currency faces substantial competition from the US dollar. Estimates are that over 80% of all transactions are now made in the greenback. As a result, it will be difficult for people using the USD to move to the ZiG currency.
There is a likelihood that the ZiG currency will deteriorate once the conversion period from the ZW$ to ZIG ends at the end of the month.
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