How is the Zimbabwe ZiG currency doing as gold prices surge?

Zimbabwe ZiG or ZWG, the country's gold-backed currency, remains under pressure as usage stays low, with analysts warning of its potential extinction one year after its launch.

Central Bank data shows that the official USD/ZWG exchange rate remains at 26.8, where it has been stuck at in the past few months.

Other data shows that the black market rate stands at between 40 and 50. This means that the currency has crashed by as much as 250% since its inception in April last year. 

Most of the current crash is primarily because of a devaluation that happened in September last year as the central bank attempted to fill the gap between the official and black market rate. 

The Zimbabwe ZiG has crashed even as its theoretical reserves have done well. It is backed by about 2.67 tons of gold and over $100 million in cash. The gold price has surged to a record high of $3,500, and analysts at JPMorgan expect it to reach $4,000 by the second quarter of 2026.

As such, in theory, the currency ought to be doing well since its backing asset is thriving. Additionally, Zimbabwe’s economy is performing relatively well, as it exports significant quantities of gold each year. It exported a record 36 tons of gold last year, worth between  $2.5 and $3 billion in 2024. Gold exports will likely continue rising this year. 

Additionally, the ZiG is expected to perform well due to its high interest rates. The central bank has boosted the official cash rate to 35%, the highest rate in Africa. The goal is to incentivize deposits in the local currency, which should boost its demand.

Why the Zimbabwe ZiG is struggling

However, the currency remains significantly weaker for several reasons. First, analysts worry that the currency is currently irrelevant in Zimbabwe, a country that has dollarized over time. Over 80% of all transactions in the country are in dollars.

Only a few people in the country use the ZiG. In most cases, government employees receive their salaries in the currency and then immediately converts the savings to the US dollar. These individuals view the USD as a more stable alternative.  A recent note by Imara Investment said:

Further, as we wrote several times last year (here, here, and here), many people in Zimbabwe have been stung by the collapse of the last five currencies. The first Zimbabwe dollar crashed spectacularly, leading to the printing of a 100 trillion banknote worth nothing. Before the ZiG, the previous RTGS currency crashed by over 80% in the first three months of last year.

As such, many people and companies in the country are often hesitant to allocate funds in the local currency, as it may depreciate. 

Currencies are built on trust, and Zimbabweans don’t have it. Just recently, the US dollar index has crashed as risks that Trump will fire Jerome Powell rose.

Additionally, the currency does not have adequate backing. It has less than 3 tons of gold and $100 million in funds, which are inadequate to support an economy with a GDP of over $35 billion. 

Therefore, the outlook for the Zimbabwe ZiG is still dire, and there is a risk that it will crash further in the future.