THE Ministry of Finance has maintained that Zimbabwe’s gold-backed currency, ZiG, will bring more economic benefits than challenges, even as it has lost value over recent weeks.
Since its April launch, the ZiG has experienced volatility, with its value dropping from around 14 to nearly 25 against the US dollar. Currently, it trades at ZiG26,9024 per US$1 on the official market.
This devaluation has led to higher costs for goods and services, disrupting supply chains and causing concern among investors about the currency’s stability and the broader economic outlook.
Mthuli Ncube, Finance Minister
Finance Minister Mthuli Ncube remains optimistic about the currency’s role, emphasising its necessity for economic growth within Zimbabwe.
“We must always have a domestic currency because you cannot control foreign currency. We do not have a monetary policy if your sole reference currency is foreign currency, so you need a domestic currency to grow,” Ncube said.
“That’s what we have in the form of ZiG. It is supporting economic growth. And don’t you think it’s surprising that with all the currency volatility we’ve experienced in the last five years, the Zimbabwe economy has grown at an average rate of 6,8 percent in the last three years?”
He also argued that the ZiG’s weakened value has, in some ways, benefitted the economy, contributing to cost control and enhancing competitiveness.
“A currency that weakens also has a way in which it leads to cost containment in hard currency terms, and this tends to increase company margins, which also adds to competitiveness,” he explained.
Ncube added that the ZiG’s depreciation supports liquidity management.
“After a 50 percent, 100 percent depreciation, you need more of the domestic currency for every US$ of hard currency… that constrains the growth of liquidity in domestic terms,” he said.
Currently, around 30 percent of transactions are conducted in ZiG, with the remaining 70 percent in US dollars. Ncube highlighted that the banking sector holds ZiG10 billion in deposits and assured that the country’s reserves are sufficient to back the currency.
“If you compare that to our reserves at US$450 million on the current exchange rate, you get a figure of about 12 billion reserves in value, versus 10 billion dollars in ZiG deposits,” he said.
“Should anyone demand hard currency, we should be able to support the currency that they need. We have enough reserves for that.” newsdesk@fingaz.co.zw