In Zimbabwe, the introduction of the new currency, ZiG, has encountered challenges, marking a significant test for Central Bank Governor John Mushayavanhu. This initiative, initially aimed at stabilizing the nation's economy, is facing hurdles due to the ZiG's depreciation against the US dollar. Since its inception, the currency has seen a 50% devaluation on the parallel market, contributing to economic distortions.
The underlying issues impacting the ZiG include increased food imports triggered by an El Niño-induced drought and a decline in commodity prices, which have adversely affected dollar inflows. The nation's inability to access international capital markets further complicates the situation. Experts argue that without addressing these fundamental problems, the prospects for the new currency remain bleak.
The thriving informal economy in Zimbabwe considered the second largest globally, exacerbates the currency's challenges. According to the Confederation of Zimbabwe Industries, this sector's dynamics are creating arbitrage opportunities, undermining the ZiG's value. Additionally, the scarcity of US dollars, driven by a lack of willingness to sell foreign currency, is putting pressure on the ZiG.
Efforts to stabilize the currency include a tight monetary policy and the potential use of the country's reserves to mitigate market disruptions. The central bank has also injected $64 million into the foreign exchange market to support the ZiG. Collaboration with the Bankers Association of Zimbabwe aims to ensure a consistent supply of forex to meet legitimate demands, thereby fostering confidence in the new currency.
Despite the current challenges, there is cautious optimism that the currency's issues can be resolved. The central bank remains committed to implementing measures to support the ZiG and stabilize the economy.
Source: BNN Bloomberg