Zimbabwe's central bank allowed the local gold-backed currency to fall over 40% against the dollar on Friday and hiked its policy rate, giving in to weeks of sustained pressure on the currency which was only launched in April.
The central bank's website gave the mid rate for the ZiG currency as 24.3902 to the dollar on Friday versus 13.9987 on Thursday, a 42.6% fall, according to Reuters calculations.
The ZiG, which stands for Zimbabwe Gold, is the southern African country's sixth attempt at a stable currency in 15 years after a bout of hyperinflation under then longtime leader Robert Mugabe.
But authorities have struggled to convince a sceptical population to stop transacting in foreign currencies.
Exchange rate flexibility
The Reserve Bank of Zimbabwe said in a statement that its Monetary Policy Committee (MPC) met on Friday and decided to allow greater exchange rate flexibility.
MPC members increased the bank's policy rate from 20% to 35% with immediate effect.
"The MPC i s convinced that the above measures will go a long way in addressing the emerging exchange rate risks, anchor the inflation expectations and stabilise prices in the near to short term," the central bank said.
Bloomberg News earlier reported that Zimbabwe was said to have devalued the ZiG by 44% against the dollar, citing four treasury dealers.
Currency devaluation
Independent Zimbabwean economist Hapi Zengeni said it was important to note that the central bank had not said whether it was allowing the currency to float freely or would still control the exchange rate after the devaluation.
This "highlights the complexities in Zimbabwe ... where the official exchange rate does not reflect the realities of the parallel market, leading to more challenging economic implications for trade, investment and more importantly consumer behaviour", Zengeni said.
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