Jury still out over new ZiG currency

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BUSINESS is happy to transact using the country’s new digital currency, ZiG, although questions abound over the tokens’ ability to reduce the local demand for US dollars.
This comes after the currency — backed by bars of physical gold held by the central bank, and whose full name is Zimbabwe Gold — became an approved means of payment for domestic transactions on Thursday last week.
The Reserve Bank of Zimbabwe (RBZ) first introduced physical gold tokens last year, with this latest initiative representing the next step in the ongoing triple quest to further stabilise the local currency and the economy, as well as to reduce the clout of the US dollar in the market.

Business leaders and other experts who spoke to The Financial Gazette this week generally welcomed the new currency, while also imploring authorities to keep the ecosystem of the tokens transparent and auditable, to foster confidence and economic stability.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, said business had been widely consulted before ZiG was rolled out, and was thus, fully aware of what the new medium of exchange entailed.
“We are certainly supportive of the government’s efforts to pep up the domestic currency through various means, of which ZiG is one of these avenues.“But with the propensity to import still very high in the country, it therefore follows that ZiG might not necessarily ease the pressure on the demand for US dollars.
“This is because ZiG is an alternative mode of payment for domestic transactions … What will lessen the pressure on the demand for US dollars is increased production, which will limit the quantum of the import bill,” Mugaga said.
“However, it is important to note that currency volatility has no direct positive co-relationship with ZiG. Such volatility is an output of market controls regarding exchange rate determination.
“It is also a result of information asymmetry, which then becomes a breeding ground for arbitrage and speculation. Once you eliminate arbitrage, the chances of a stable currency become high.
“So ZiG becomes a necessary, but not a sufficient condition for the stability of the Zim dollar,” Mugaga added.
The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza also said manufacturers would accept any legal tender introduced by authorities, including the tokens.

“The pressure for US dollars is because they act as a store of value, and therefore to the extent that ZiG will meet that, it may lessen the demand for greenbacks,” he said.
The president of the Confederation of Zimbabwe Retailers (CZR), Denford Mutashu, also cheered the introduction of the new digital currency, while also encouraging the public to embrace the tokens.
“ZiG is a welcome development. CZR thus, urges the public to embrace the peer-to-peer and peer-to-business digital currency backed by real gold coins,” he said.
However, analyst Ranga Makwata believed that the tokens’ impact on demand for US dollars would be limited.
“The demand for the US dollar, especially as a store of value, will continue to be there. Confidence-building measures need to be put in place to ensure the acceptability of ZiG over time.
“In that regard, authorities must resist the temptation to print it recklessly, because it will devalue the currency and cause another episode of inflation.
“It has to remain stable for a long time for it to be accepted as a store of value,” Makwata told The Financial Gazette — Zimbabwe’s number one business publication.

He also noted that the tokens were not likely to be more stable than the US dollar — because their value would track the gold price and the official exchange rate, which were both relatively “volatile”.
“It is incumbent upon the central bank to assure the public that indeed there is the requisite gold backing for the ZiG.
“The whole process also has to be transparent and auditable, to remove any doubts around it, otherwise it will meet the same fate that sunk the Zim dollar,” Makwata added.
The central bank has said an independent certification mechanism would be put in place to reassure the public of the availability and adequacy of the gold to back ZiG, and to “engender confidence” in the tokens. But economist Eddie Cross was doubtful that the country had adequate gold reserves to back the new digital currency.

“I cannot see any redeeming features from this new currency being issued by the central bank.
“In any event, this does not resolve the fundamental problem of the country, which is the lack of a suitable local currency in which to effect transactions on a daily basis.
“This idea cannot work. I do not see how it can possibly take the place of any of the currencies that are currently in use,” Cross said.
Analyst Lloyd Mlotshwa was more optimistic, saying data showed that physical gold coins had “sterilised significant Zim dollar balances, which indirectly reduced the demand for US dollars, creating some stability”.
“Of course, this was in tandem with other measures. In principle, the ZiG is an extension of the same instrument and should mirror that.
“However, the deeper question is to what extent the Zim dollar remains relevant as a transactional currency if plans around the P2P platform for the ZiG succeed as intended,” he added.
Meanwhile, the central bank says it expedited the process of introducing the new digital currency, as a new payment method having seen the strong uptake of physical gold tokens for value preservation purposes.
Governor John Mangudya said the uptake of the tokens stood at 332 536 636 milligrams as of September 19 this year. The apex bank said the value of ZiG would be at par with the value of the physical gold coins and would remain informed by the international gold price.
“Banks will maintain dedicated ZiG accounts and intermediate transactions in ZiG in the same way they intermediate transactions in local and foreign currency.

“The applicable intermediated money transfer tax (IMTT) will be half of the IMTT applicable to transactions in foreign currency, and the relevant legal instrument to that effect will soon be published,” Mangudya said last week.
The rollout of ZiG is also part of Zimbabwe’s phased central bank digital currency (CBDC) experiment, which started after the RBZ banned the cryptocurrency exchange Golix in 2018.
In the meantime, the Public Accountants & Auditors Board’s (PAAB) technical department is still evaluating the accounting implications of peer-to-peer transactions in ZiG, according to Secretary Admire Ndurunduru.

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