Zimbabawe has tried at least five different exchange-rate regimes in the last ten years, desperately seeking, but failing to find, economic stability, and hoping to wean itself off the US dollar, to no avail. Yesterday it launched yet another, in the form of a new currency, the ZiG, but there seems little to suggest it will have any more credibility than its predecessors.
As was signposted, the new currency will be backed by the Reserve Bank of Zimbabwe's holdings of gold and other mineral resources and foreign-exchange reserves. Collectively, these fall well short of what would be needed to keep ZiG stable. Trading in ZiG only began yesterday, with an initial exchange rate of USD 1 / ZiG 13.56, replacing the latest Zimbabwe dollar rate of USD 1 / ZWL 28,720, but there are already reports that the country's long-suffering people (and possibly even the central bank itself!) don't trust ZiG. Some have also expressed doubts that transfers of digital accounts in the old Zimbabwe dollar into new ZiG accounts, which happened over the weekend, would have been done fairly. Cash holdings will need to be converted at banks into ZiG within the next three weeks, according to new regulations, although ZiG-denominated banknotes will not, apparently, be available until the end of April!
This latest reform is partly an attempt to cut reliance on the US dollar. Dollarisation of the economy has increased so much that America's currency now accounts for a reported 80% of all transactions. The introduction of ZiG comes with measures including a demand that companies settle at least half their taxes in ZiG, but such rules have been tried before and failed to slow dollarisation. Indeed, even the full-scale ban on use of the US dollar, briefly imposed in 2019, was unsuccessful. The only thing preventing full dollarisation, it seems, is an inadequate supply of US dollars because of Zimbabwe's weak exports and lack of foreign investment.
The predominance of US dollars in the economy means ECA will publish its March 2024 cost-of-living indices for Zimbabwe in USD. These will be available next month.
The central bank will presumably try to hold the new currency's exchange rate up for as long as possible, but it seems only a matter of time before depreciation begins to significantly erode its value, just as happened with all the others.