Zimbabwe dollar: ZWD moves to the abyss amid hyperinflation fears

The Zimbabwe dollar is in a freefall again leading to substantial concerns about inflation and stability. Data shows that the currency has plunged in all days this year. It has slipped by more than 66%, leading to a sharp increase in the prices of most items.

The USD/ZWD pair was trading at 18,000 and analysts believe that it will move to 20,000 soon. This is a remarkable downfall for a currency that was trading at less than 10,000 in 2023. The black market rate is being quoted at 23,500.

The ongoing sell-off of the Zimbabwe dollar is sending memories of the hyperinflation era when the central bank published a $100 trillion note. Indeed, there are signs that the country may be moving in that direction as the price of a loaf of bread has moved to Z$19,000 from Z$6,100 a few months ago.

The challenge for the Zimbabwe dollar is that the central bank has moved to the sidelines as it struggles on how to intervene. In the past, the bank used to intervene by hiking interest rates. In its last meeting in December, the bank left interest rates intact at 130%. 

Analysts believe that the bank has no options available to deal with the Zimbabwe dollar crash. They argue that a rate hike will not help to boost ZWD demand now that most people have lost confidence in the currency.

The bank could also back the currency with gold, which it has in abundance. However, the impact on that measure would not be feasible, analysts say. 

For example, the bank’s decision to launch gold tokens in 2023 has not helped to boost demand for the currency. Also, it would be a huge experiment since no country backs its currency with gold.

Therefore, all this means that the future of the Zimbabwe dollar is in peril since confidence has disappeared. Instead, most people and businesses have moved to the US dollar, which accounts for about 80% of all transactions.

The Zimbabwe dollar woes are worse than those of other African currencies. For example, the Nigerian naira has plunged by more than 50% in the past few months. The Egyptian pound has also plummeted after a recent devaluation.

Recently, however, some African currencies have bounced back. The Kenyan shilling is one of the best-performing currencies globally. It has moved from 163 in January to 130 against the US dollar today. 

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