Source: ZiG overvalued, stability artificial: IMF –Newsday Zimbabwe
THE International Monetary Fund (IMF) has poked holes into the government’s claims that the stability of the Zimbabwe Gold (ZiG) currency reflects sound policy, revealing heavy Reserve Bank of Zimbabwe (RBZ) intervention.
The global lender said the official rate is overvalued and not market-driven. The ZiG, which debuted in April last year in Zimbabwe’s sixth attempt to establish a stable currency in over a decade, has stabilised with the gap between the parallel and official markets narrowing due to a hawkish monetary policy stance, according to the central bank.
The ZiG’s monetary base growth slowed to around 30% from October 2024 to April 2025, according to the IMF.
Resultantly, both the willing buyer, willing seller (WBWS) and parallel market exchange rates have largely stabilised, with the rate remaining in the US$1:ZiG25–ZiG28 and US$1:ZiG32–ZiG36 ranges, respectively, over the past few months.
However, the IMF’s 2025 Article IV Consultation report released on Friday last week revealed that this apparent stability masks a deeper overvaluation of the ZiG.
“The RBZ has remained a dominant seller in the WBWS market, stabilising the rate within a narrow range through FX [forex] interventions funded by surrender requirements, raised to 30% in February 2025 to boost capacity for interventions and build reserves,” the IMF said.
“Authorised dealers report that uncovered FX demand declined and the RBZ has managed to start building FX reserves reflecting the recent current account strength, but gross international reserves remain low (US$683 million by late May 2025), covering less than one month of imports. Staff assess the external position to be weaker than the level implied by fundamentals and desirable policies.”
Confirming matters, the WBWS exchange rate does not appear to fluctuate in response to market conditions.
“The rate does not systematically respond to a buildup in FX demand when the RBZ is absent from the market, as agents expect periodic interventions at the stabilised rate,” IMF said.
“Exchange restrictions and capital flow measures (CFM) also interfere with the working of the FX market, including the increase in surrender requirements.”
It said reducing the RBZ’s footprint and restrictions in the FX market would allow the ZiG to find its true value.
“Establishing a market-determined exchange rate requires reducing the RBZ footprint in the FX market by gradually redirecting surrender requirements into the market through authorised dealers and eliminating market barriers from exchange restrictions, in line with the IMF’s latest Article VIII recommendations,” the Bretton Woods institution said.
“This is essential to make the exchange rate an effective intermediate target. It will also help narrow the gap between the WBWS and parallel market rates, bolstering confidence in the ZiG and reducing economic distortions. In the longer term, a comprehensive package of macroeconomic, financial, and structural policies should allow for a gradual relaxation of CFMs.”
Economists say the domestic currency must account for at least 15% of total money in circulation to compete with foreign currencies— a threshold the ZiG is still far from reaching.
As of June, the total broad money supply stood at ZiG97,34 billion, but about 72,4% was held in foreign currency deposits, highlighting how little the ZiG is used.
Considering that this figure largely covers the formal sector, which represents only 23,9% of the economy, the ZiG remains widely rejected by the broader economy.
“Staff recommend moving to a more transparent, market-based FX system and a more coherent monetary policy framework. A credible monetary and FX policy framework is essential to establish the ZiG as a stable and more widely used national currency,” the global lender said.
“In the long run, staff recommend a more flexible FX regime and inflation targeting.
“But given the high degree of dollarisation and strong pass-through from the exchange rate to prices, staff initially recommend achieving price stability (ultimate objective) by stabilising the ZiG nominal exchange rate against a suitable basket of currencies (intermediate target) by controlling base money growth (operational target) through an appropriate calibration of domestic liquidity conditions rather than FX interventions.”
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