The Zimbabwe ZiG currency has moved sideways this year as it outperformed many of its peer currencies. Data provided by the central bank shows that the exchange was trading at 26.7 today, August 19, where it has remained in the past few months.
Zimbabwe ZiG helped by key tailwinds
The Zimbabwe ZiG currency remained in a tight range this year, supported by several major tailwinds. The most important of these tailwinds is the ongoing gold price surge, which helped to boost its reserves to a record high.
Gold price surged to a high of $3,498 earlier this year. While it has pulled back to $3,335, it remains much higher than where it was when the Zimbabwe central bank launched ZiG to replace the previous Zimbabwe dollar.
The rising gold prices have coincided with the surging gol output in the country. In a recent statement, the central bank said that it held 3.4 tons of gold in its vaults, much higher than 1.5 tons it stored in April last year when it launched the ZiG.
Recent data showed that Zimbabwe’s gold output soared by 46% to 20,104 in the first half of the year. According to the current gold price of $107,990 per kilogram, the value exceeded $2.1 billion.
The Zimbabwe ZiG has also been boosted by the weather, which has helped to boost the country’s tobacco exports and reduce its food imports.
Recent data showed that the country’s tobacco sales jumped by 48% in the last season. These sales reached a record high of $1.1 billion, with volumes increasing by 53% to 352.7 million. Most of the tobacco exports went to China and other countries.
Zimbabwe seeking to repay debt
The Zimbabwe ZiG has also stabilized as the country seeks to exit default, where it has remained for the past two decades. It owes $21 billion to the World Bank and other institutions.
Zimbabwe has begun discussing with developed world countries to help finance its debt payments. Although the response has been mild, there is hope that a deal will be reached within the next 12 months.
The ZiG has also stabilized as the IMF pushes for it to become the sole legal tender in the country. In recent statements, the government and central bank officials have hinted that they will be comfortable doing this.
Read more: The Zimbabwe ZiG currency is flourishing: here’s why
The ZiG will replace the US dollar, which is used in over 80% of transactions in the country. Such a move, if it works out, will help to boost the demand for the ZiG currency.
The challenge, however, is that Zimbabweans remains concerned about the local currency after the previous five ones collapsed, leading to substantial losses to companies and individuals.
The other bullish catalyst for the ZiG currency is that the central bank has boosted interest rates to over 30%, making it an ideal carry trade pair. In this, sophisticated investors are borrowing the US dollar and then invests in the Zimbabwe ZiG that yields about 35%.
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