Dr. John Mushayavanhu, the Governor of the Reserve Bank of Zimbabwe (RBZ), recently addressed concerns regarding the decline in value of the Zimbabwe Gold (ZiG) currency, which was introduced in April. Despite rising global gold prices, the ZiG has experienced a significant devaluation, dropping 44% from 13.99 to 24.39 per US dollar.
In an interview with a local paper, Dr. Mushayavanhu clarified that the ZiG currency is intrinsically linked to both gold prices and inflation rates in Zimbabwe and the United States. While global gold prices have risen, high inflation rates in Zimbabwe have adversely affected the currency’s value.
“The underlying value of the structured currency (ZiG) is designed to mimic the movement in the prices of reserve assets backing it and the inflation differentials,” he explained. This mechanism is intended to reflect the fluctuations in Zimbabwe’s reserve assets, such as gold, alongside the inflation disparities between the ZiG and the US dollar.
Dr. Mushayavanhu noted that although the gold price has firmed, rising inflation in Zimbabwe has offset any gains. He highlighted recent inflation figures, with month-on-month inflation at 1.4% in August 2024 and 5.8% in September 2024, which have contributed to the currency’s depreciation.
He elaborated on the necessity for a price discovery mechanism, which allows the exchange rate for the ZiG to adjust according to current economic conditions. This adjustment aims to mitigate the effects of excess liquidity in the economy, helping to anchor inflation expectations and minimize inflation differentials in the future.
“The movement in the exchange rate is expected to play a critical shock-absorbing role on the prevailing excess liquidity, ensuring the currency remains aligned with macroeconomic dynamics,” Dr. Mushayavanhu concluded. As Zimbabwe navigates these economic challenges, the RBZ continues to emphasize the importance of adapting monetary policy to stabilize the ZiG and support the nation’s financial framework.
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