USD to ZiG: Will the Zimbabwe Gold currency stability last?
The new Zimbabwe Gold currency has continued to stabilise against the US dollar and other currencies. According to the central bank, the USD to ZiG exchange rate was trading at 13.50, a few points above its initial price.
ZiG has stabilised, helped by the actions by the government to prevent its volatility and its decline. The most important action has been to crackdown on street traders, who were blamed for crashing the other versions of the country’s currency.
At the same time, the government has imposed substantial fines for transacting the currency outside of the official exchange rate. It has also boosted transparency by listing the exchange rate on its website each day.
The continued use of the Zimbabwe Gold has had some positive impact on the economy. Inflation has generally fallen while the government has scrapped the 180-day rule in the stock market.
The rule meant that all buyers of Zimbabwe stocks had to hold them for at least 180 days before selling. Those who sold these stocks had to pay a higher capital gains tax.
Still, there are concerns about the future of Zimbabwe’s ZiG currency and whether it will survive in the long term. Besides, Zimbabwe has become famous for its past currency collapses. The most recent collapse was the Zim RTGS dollar, which lost almost 100% of its value since its inception.
The biggest concern is whether the government will print new ZiG currencies to fund its budget as it has done before. The government has pledged not to print the currency, a statement that should always be taken with a grain of salt.
There are also concerns about whether the peg will continue holding steady. Zimbabwe Gold is backed by 2.5 tons of gold and over $100 million. As we saw with the US dollar in the 1970s, it is hard to maintain a currency peg.
Most recently, the Hong Kong Central Bank has been forced to intervene severally to maintain the HKD peg. In 2023, the bank intervened 49 times, spending over H$293 billion to defend the peg. It is unclear whether Zimbabwe has the financial resources to defend the ZiG currency.
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