Zimbabwe Central Bank Intervenes in Forex Market to Support Currency

AFRICAN BUSINESS AND ECONOMYSeptember 2, 2024 at 9:45 AM UTC

TLDR

Zimbabwe's central bank strategically intervenes in the foreign-exchange market to meet U.S. dollar demand among lenders.
Reserve Bank of Zimbabwe uses 50% of exporter forex proceeds to support the market, aiming to maintain operational flexibility.
Despite efforts, Zimbabwe's gold-backed currency, the ZiG, fell to 13.85 per dollar, hitting its lowest level since launch.

Zimbabwe’s central bank is "strategically intervening" in the foreign exchange market to meet demand for U.S. dollars among lenders, as the nation’s gold-backed currency, the ZiG, continues to weaken.

The Reserve Bank of Zimbabwe is using 50% of the foreign exchange proceeds collected from exporters to support the market, according to Governor John Mushayavanhu. The bank’s intervention is aimed at maintaining operational flexibility in response to supply and demand dynamics.

In July, the central bank injected $50 million into the market to address increased dollar demand and bolster the ZiG, which was introduced in April as Zimbabwe’s sixth attempt at a stable local currency in 15 years. Despite these efforts, the ZiG fell to 13.85 per dollar on Friday, marking its lowest level since its launch.

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Key Takeaways

The intervention reflects ongoing challenges in maintaining currency stability in Zimbabwe, where the ZiG is the latest in a series of attempts to establish a functional local currency. Despite these efforts, the currency's depreciation highlights the difficulties Zimbabwe faces in achieving monetary stability. The central bank’s strategy includes maintaining the key interest rate at 20% and targeting inflation below 5% by year-end while promoting increased usage of the ZiG in electronic transactions.

Zimbabwe

Economy

ZiG

Currency

Foreign Exchange

Forex

Reserve Bank of Zimbabwe