Zimbabwe's Foreign Reserves Hit $500 Million amid Higher ZiG Demand

Zimbabwe’s foreign exchange reserves rose to $509 million as companies liquidated their foreign currency positions, creating demand for the local currency, the state-run Sunday Mail reported, citing Reserve Bank of Zimbabwe Governor John Muchaivanu, according to Bloomberg.

The rise in the local currency, known as the “ZiG,” was also due to the central bank’s increase in its benchmark interest rate in September to 35% from 20%, Muchaivanu told the Harare-based newspaper. Last week, the “ZiG” posted its first weekly gain since its devaluation in late September, rising to 25.60 against the dollar.

“The tight liquidity conditions in the “ZiG” amid the tight monetary policy stance in the market have increased the willingness of economic agents to liquidate their foreign currency positions,” Muchaivanu added. These conditions have contributed significantly to the appreciation of the currency,” he said.

As of November 6, local currency reserves stood at around 3.4 billion ZiG ($129 million), compared to foreign exchange reserves of $509 million, he said.

The ZiG, which was introduced in April and is backed by the South African nation’s gold and foreign currency reserves, is the country’s sixth attempt in 15 years to create a stable local currency to replace the dollar as the main unit of exchange.

The ZiG was devalued by 43% against the dollar in September at the same time as interest rates were hiked. This pushed the monthly inflation rate in October to 37.2% from 5.8% in September.