Tawanda Musarurwa
Check Point Desk
THE Zimbabwe dollar — which preceded the new currency, Zimbabwe Gold (ZiG), that was introduced on April 5 last year — was often plagued by volatility.
However, ZiG, which is anchored by gold and foreign currency reserves, has been relatively stable.
And over the past year, the reserves have been rising exponentially.
Between April 2024 and March 2025, they markedly grew by 127 percent from US$276 million to US$629 million.
The 127 percent increase in just under a year represents one of the most significant improvements in Zimbabwe’s macroeconomic indicators during this period.
Why this matters?
Foreign reserves act as a buffer, an insurance against currency shocks, external debt pressures and speculative attacks.
For Zimbabwe, whose economy has historically been vulnerable to inflation and currency volatility, this rise signals that ZiG is being steadily and sustainably backed.
Since the introduction of the ZiG currency last year, the Reserve Bank of Zimbabwe (RBZ) has worked to instil confidence by pegging the currency to tangible reserves — including gold holdings, foreign currency deposits and other secure assets.
According to the March 2025 data provided by the central bank, ZiG reserve money stood at 3,8 billion and was covered more than 100 percent by total foreign reserves (which were worth ZiG16,8 billion in local currency terms).
This reflects a deliberate monetary strategy to tighten the link between money supply and reserves.
What is driving growth?
According to central bank data, several factors explain the upward trend, namely tight monetary control and the currency reform; rising export revenues and gold holdings; controlled exchange market and reduced premiums, as well as reduced foreign currency demand.
The RBZ’s adoption of a tight monetary policy framework since April 2024, which coincided with the introduction of ZiG, has played a crucial role.
By limiting the growth of reserve money, the central bank effectively curtailed speculative demand for foreign currency and reduced excess liquidity in the economy.
The data shows that the monthly growth in the ZiG component of money supply, which previously exceeded 100 percent, has been reined in to just under 1 percent as at the end of the first quarter
of this year.
This stability allows reserves to accumulate without being drained to support the local unit.
Second, the country’s gold holdings also provide a strong foundation for its reserves. RBZ data shows that gold holdings grew from 1,5 tonnes in April 2024 to 2,7 tonnes in March 2025, an 84,7 percent increase.
In value terms, this equates to a jump from US$113 million to US$274 million.
Gold continues to be Zimbabwe’s leading export commodity, and the central bank’s direct accumulation of gold through both purchase schemes and mining sector incentives has added weight to the reserve basket.
Third, the market-determined rate being achieved through the willing-buyer, willing-seller (WBWS) exchange rate has remained steady, increasing only moderately from 13,4 in April 2024 to 26,7 as at the end of the first quarter of this year.
Perhaps more significantly, the parallel market premium fell from over 100 percent in September 2024 to below 20 percent by March 2025.
This decline is a signal that the market sees the official rate as credible.
The RBZ attributes this convergence to “the additional measures to deepen the foreign exchange market”, including transparent auction systems, greater participation by exporters and currency stabilisation policies.
And fourth, there has been a noticeable decline in foreign currency demand.
From the RBZ data, the uncovered foreign currency demand has been falling steadily — from US$11,6 million in September 2024 to US$10,3 million in March 2025.
Several key factors could be at play here: stability of the local currency is ensuring that it is becoming a more trusted store of value and demand for the US dollar in local transactions could also be dropping.
These factors can reduce pressure on foreign reserves.
Benefits
“Having adequate reserves is critical in that it provides cover in terms of the stability of the exchange rate,” said economist Dr Prosper Chitambara.
“It means the central bank can always draw down on its reserves as it defends the currency, especially in the event of speculative attacks.
“But, of course, we need much more than US$600 million. The minimum threshold for an economy the size of Zimbabwe is around US$3 billion, which is about three months import cover.”
By ensuring that ZiG is well-backed by a growing stock of foreign reserves, the central bank has taken a pivotal step in restoring trust.
ORIGINALLY PUBLISHED IN THE SUNDAY MAIL – https://www.heraldonline.co.zw/forex-reserves-inch-towards-us1-billion-what-it-means/