Five months after its introduction, Zimbabwe's new currency is facing challenges as rising grain imports deplete foreign reserves, jeopardising the government's goal of making it the sole currency in circulation by 2026.
The gold-backed Zimbabwe Gold (ZiG), the country's sixth attempt at a stable currency in 15 years, was launched in April at a rate of 13.6 ZiG per US Dollar but has since depreciated by nearly 80% on the black market.
The central bank announced on Thursday it had injected $64 million into the foreign exchange market this month to meet the demand for Dollars.
“Over the past weeks, the Reserve Bank witnessed a build-up in pipeline demand for foreign currency at banks, reflecting transitory foreign currency supply and demand mismatches, thus, exerting undue pressure on the foreign exchange market,” said central bank governor John Mushayavanhu in a statement.
He added that this came despite a $50 million injection by the Reserve Bank in July, and said the bank would continue to step in as necessary to maintain the stability of the ZiG, Reuters reports.
Furthermore, independent economist Prosper Chitambara commented that the currency's devaluation reflects a lack of confidence in the new currency, which locals have been hesitant to adopt.
Whilst Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe's Monetary Policy Committee, told Reuters that despite the slow uptake, it is premature to label the new currency a failure.
Gwanyanya suggested that the government could encourage greater use of the ZiG by imposing more taxes in the local currency.
“Government more than any other should show preference for its own currency and there is need for urgent intervention by injecting more foreign currency on the market,” he said.
Moreover, in July, the central bank governor told Reuters that the authorities were committed to keeping their promises to build trust in the new currency, a stance that Gwanyanya also reiterated.
“It is too early to consider that this may be the death of the ZiG,” Gwanyanya stated.