Zimbabwe Central Bank Claims ZiG Is Heavily Undervalued Against the Dollar

Mintesinot Nigussie

Zimbabwe’s central bank has said the country’s gold-backed currency is trading well below its implied value, arguing that reserve coverage suggests a materially stronger exchange rate than current market levels. Central bank governor John Mushayavanhu said that, based on the country’s foreign reserves and gold holdings, the authorities could in theory buy back all Zimbabwe Gold (ZiG) in circulation at around 15 per US dollar. The currency is currently trading between 25 and 28 per dollar.

The ZiG, introduced as Zimbabwe’s sixth currency attempt in 15 years, is backed by 2.5 tonnes of gold and about 100 million US dollars in foreign currency reserves. It was launched as part of repeated efforts to restore monetary stability following years of hyperinflation and currency failures.

Despite this backing, the US dollar continues to dominate economic activity. More than 90 percent of transactions are still conducted in foreign currency, according to the Confederation of Zimbabwe Industries, limiting the circulation of the local unit.

Mushayavanhu said the key constraint remains confidence in the monetary system, noting that trust in the central bank is still being rebuilt after years of instability. Inflation has eased significantly from previous crisis levels, reaching 4.4 percent in March, slightly higher than February’s 3.8 percent but far below levels above 50 percent recorded when he took office.

The central bank has maintained its benchmark interest rate at 35 percent while assessing risks from global price pressures, including fuel and fertiliser costs linked to geopolitical tensions. Zimbabwe’s foreign reserves stand at about 1.4 billion US dollars, including gold holdings. Gold production rose 8.3 percent in the first quarter to 9,312 kilograms, generating export earnings of 843.3 million US dollars, up from 395.9 million US dollars in the same period a year earlier.

He also warned that domestic risks remain, particularly the possibility of an El Niño weather pattern later in the year, which could disrupt agricultural output, drive grain imports and add pressure to foreign exchange reserves.

Overall, the Zimbabwe central bank’s claim that the ZiG is heavily undervalued against the dollar highlights ongoing challenges in restoring confidence in the local currency and stabilising the country’s monetary system.