Zimbabwe’s central bank has devalued its gold-backed currency, the Zig, by over 40% against the US dollar, signaling trouble for its efforts to stabilize the nation’s economy. The Reserve Bank of Zimbabwe (RBZ) reduced the exchange rate to 24 Zig per US dollar on Friday, amid rising demand for the US dollar, which is also used as legal tender in the country.
The currency devaluation follows warnings from large retailers about potential store closures if the rate remained unchanged. The Zig, short for Zimbabwe Gold, was introduced over six months ago, making it the sixth currency in the country’s history in the past 25 years.
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According to Reuters, the RBZ’s Monetary Policy Committee made the move to allow more exchange rate flexibility, aiming to address “emerging exchange rate risks, anchor inflation expectations, and stabilize prices in the near to short term.”
Although the Zig had maintained its value on paper, it has lost more than half of its value on the black market, where most businesses acquire US dollars. The government has faced difficulties in convincing citizens to abandon the US dollar, given the absence of a reliable alternative.
Zimbabweans remain wary of the central bank, recalling the hyperinflation crisis of 2008, when the RBZ printed 10 trillion Zimbabwe dollar notes, leading to economic chaos.
