ANALYSIS | Gold Prices Rise, But ZiG Value Doesn’t Follow

By Dr Admire Dube

HARARE – THE surge in gold prices does not directly increase the value of the ZiG, because the currency was never pegged to the metal itself.

At its introduction on April 5, 2024, the exchange rate was $1 to ZiG13.56. This rate was derived from a gold price of $2,294.66 per ounce, equating each ZiG to 1 milligram of gold.

If the ZiG were truly pegged to gold, its value today would be much stronger. With gold at $4,033.71 per ounce, the same formula would hypothetically give an exchange rate of $1 to ZiG7.71.

But that is not the case. The actual ZiG value as of today is $1 to ZiG26.7.

So, what’s the difference between being backed by and pegged to gold?

The ZiG is backed by gold (as well as US dollars and other minerals). This means gold serves as a reserve asset to “underpin the currency’s stability and build confidence among holders.” It does not create a rigid, one-to-one peg where the ZiG’s external value moves in lockstep with the spot price of gold.

A true peg would demand 100% (or higher) convertibility, where each ZiG unit is redeemable for a precise amount of gold. This would force the exchange rate to adjust proportionally. If gold rises 75.75%, the ZiG would strengthen by the same factor.

However, the Reserve Bank of Zimbabwe (RBZ) does not have the $3.5 to $4 billion worth of gold needed to cover the roughly 100 billion ZiG in circulation for a 1:1 convertibility.

With only partial backing—closer to 37% initially, and now eroding to about a quarter as ZiG circulation outpaces reserve accumulation—the ZiG operates more like a “managed float.” Here, reserves act as a buffer against shocks rather than a strict anchor.

Financially, this means the RBZ can intervene in forex markets (e.g., selling gold or USD to buy excess ZiG and stabilize the rate) but cannot enforce full convertibility without depleting its reserves.

Consequently, the exchange rate is determined not just by the price of gold, but by broader monetary dynamics: the velocity of money circulation, fiscal leakages, and external imbalances, all of which dilute the currency’s effective value.

The Indirect Benefit of High Gold Prices

Firming gold prices do indirectly bolster the ZiG. The RBZ’s reserves are built from royalties on gold production, split 50% in USD and 50% in physical gold.

As global gold prices have climbed 75.75% since the ZiG’s introduction, the value of the RBZ’s existing gold stockpile has appreciated. For instance, 2 tonnes of gold reserved last year are now worth approximately $256 million, compared to $146 million at 2024 prices. This provides an extra $110 million in effective backing, bolstering the ZiG’s forex buffer.

Moreover, the RBZ’s 30% export retention scheme on all exports, including a projected record 44 tonnes of gold this year, means higher gold prices translate directly into higher US dollar inflows. Even at a steady 35 tonnes of exports, the higher price would yield $4.54 billion, up from $2.58 billion last year.

A Stronger ZiG Isn’t Even Desirable Right Now

It is crucial to add one final point: a significantly stronger ZiG should not be desirable at this stage.

A robust ZiG, like the hypothetical rate of 7.71, would make Zimbabwe’s non-mineral exports such as agriculture, horticulture, and manufactured goods far more expensive on the global market compared to substitutes from regional rivals like Zambia or South Africa.

Such a move would render Zimbabwe’s products uncompetitive. At this fragile stage, with reserves covering just two months of imports, the country must be wary of trading short-term stability for long-term trade losses.

• Dr Admire Maparadza Dube is a non-executive director at FinAcco Capital, providing strategic leadership for the Holding Business and finance functions for the Operating Units. He has a wealth of experience in executive positions spanning banking, project management, wealth management, financial planning, the statutory environment, tax and customs procedures in Financial Services companies, Banks, Energy sector, Wealth Management and a Tax Authority
• He holds an Honours Degree in Banking & Finance, MSc in Development Finance, a CFA Charter Holder, as well as Internal Controls Investments and Certificates. He recently graduated with a Ph.D. in Finance and his thesis was : The Relevance of Central Banks In A More Global Economy Where More Exogenous Factors Than Local Policies Determine Direction of National Macroeconomics.
• His career objectives are to grow professionally in the fields of Finance & Admin, Strategy, Capital Markets and Economic planning & Research to realise his full potential leading to a simultaneous growth of his organisations and make a positive impact in his community.
• http://www.admiremaparadzadube.com
• X: @admire_dube