Economic Turbulence: Zimbabwe Slashes Value of Gold-Backed Currency

Zimbabwe’s central bank has devalued its gold-backed currency, the Zig, by over 40% against the US dollar, highlighting the challenges facing the country's economy. The Reserve Bank of Zimbabwe (RBZ) announced that the exchange rate was slashed to 24 Zig to $1 on Friday in response to increasing demand for the US dollar, which remains legal tender in the country.

This move follows warnings from major retailers that they would have to close stores if the rate remained fixed, as they rely heavily on US dollars for trade. The Zig, introduced over six months ago as the sixth currency in Zimbabwe's last 25 years, aimed to provide stability but has struggled, particularly in the black market, where it has lost over half its value.

The RBZ’s Monetary Policy Committee stated that this adjustment is necessary to address exchange rate risks and stabilize inflation expectations. However, public trust in the central bank remains low, rooted in memories of Zimbabwe's hyperinflation crisis in 2008 when the country issued 10 trillion Zimbabwe dollar notes amid soaring inflation. As Zimbabwe grapples with these economic challenges, the government faces the difficult task of reducing reliance on the US dollar while attempting to restore confidence in its domestic currency.