The Zimbabwean ZiG currency has remained in a tight range this week as investors reacted to the new announcement by the government. The USD/ZWG exchange rate was trading at 26.19, where it has remained this year.
Zimbabwe pledges not to abandon the US dollar
The Zimbabwe ZiG currency was unchanged after President Mnangagwa announced that the country would not abandon the US dollar fully as previously planned.
While the currency will be used for domestic transactions, dollar-based assets like bonds and stocks will not need to be converted into ZiG.
This announcement happened as the use is the ZiG has continued growing in popularity in the past few months. Data shows that the currency is now used in about 40% of the transactions, with the rest being in US dollars. A year ago, the dollar accounted for over 80% of transactions.
The Zimbabwe ZiG currency also held steady after the government said that it would introduce a new royalty structure for gold mining companies as it seeks to benefit from the soaring price.
In a statement, Mthuli Ncube, the Finance Minister, noted that starting from January, that the royalty will be tied to the price level or price category. He hopes that the government will start sharing gold’s upside in the long term.
The new approach will see the government take a 3% royalty on gold mined if the price is between $0 and $1,200. Its royalty will be 5% if the price is between $1,201 and $2,500. The royalty will jump to 10% when the price moves above $2,500.
These measures will benefit the Zimbabwean ZiG because it is backed by both gold and foreign currencies, especially the US dollar. Its reserves have jumped this year as the country has mined more gold as the price has soared.
Meanwhile, the government plans to boost spending to boost an economy that is showing signs of strengthening. The expectation is that its expenditure will jump to ZWG 290 billion, which is equivalent to $11 billion in 2026.
What is the future of the Zimbabwe ZiG?
Zimbabwe’s Central Bank launched the ZiG in April last year in its sixth attempt to create a stable currency. The main difference with the other currencies is that it is backed by gold and the US dollar.
The currency had a weak uptake among Zimbabweans shortly after its launch as concerns about its future remained.
At the time, the spread between the official and the black market rates soared. As a result, the bank decided to devalue it by 43% in September, a move intended to bridge the gap between the official and the black market rates.
Zimbabwe now plans to make the ZiG the main currency in the country by 2030, a time when the government believes it will have accumulated adequate reserves to back it up. In a statement, the deputy central bank governor said:
“We have enough foreign currency reserves that will be able to cover the next three to six months. By 2030, all things being equal, we will have enough foreign currency reserves to transition to a mono-currency.”
Still, many Zimbabweans have doubts on the sustainability of the ZiG because of their past experiences, when local currencies imploded because of money-printing by the government.
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