TL:DR,
- Zimbabwe’s ZiG currency launches as physical gold-backed money, with 2.6 tonnes gold reserves backing 1.1 billion ZiG units, replacing previous digital token plans in AprilÂ
- Zimbabwe abandoned its digital currency ambitions, converting gold-backed digital tokens into physical ZiG notes and coins valued at international gold prices.
- One ZiG is equivalent to 1 mg of gold, with prices directly linked to the price of gold on the world market.
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On Friday, the 5th of April, newly appointed Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu announced that the Gold-Backed Digital Tokens, which had been named ZiG currency, will now cede the name to a physical fiat currency with notes and coins that will be backed by gold in the same way as the digital token was.
This move temporarily shatters any hopes that the Southern African country was heading towards progressive financial technologies, such as launching a blockchain currency or central bank digital currency (CBDC). The gold-backed currency becomes leal tender on Monday, the 8th of April.
The Bitter History of Currency in Zimbabwe
Zimbabwe has had currency controversy for the last quarter of a century, with citizens using ten unique domestic currency sets of notes in a short period. The most recent iteration, initially named the RTGS Dollar, lasted just five years. After being fully launched in February 2019 with an equivalent value to the US Dollar, it bowed out with an official exchange rate where 1 US Dollar fetched 33,000 local dollars.
The parallel or black market rate is valued at 1 US Dollar at nearly 50,000 Zimbabwean dollars (ZWL). The valuation of the ZWL comes down to the official position not matching market dynamics.
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In contrast, this is by far a better position citizens have found themselves in, with the original domestic Dollar (ZWD) demonetized in 2009, with 1 US dollar buying 45 quadrillion Zimbabwean Dollars.
From Gold Coins to Digital Tokens: The Precursors to ZiG
In an attempt to stabilize the exchange rate, the Reserve Bank governor, John Mangudya, launched gold coins, which could be used as a savings instrument, allowing citizens to convert their local currency into gold coins. Gold prices will determine their value, making it safe from inflation.
Photo:The-Hindu
The idea somewhat succeeded and spurred the idea of taking it a step further. The gold-backed currency, strictly a savings instrument lacking full legal tender status, weighed one troy ounce. The relative success of these gold-backed currencies encouraged authorities to start working on a Gold-Backed Digital Token. These gold-backed tokens, envisioned as fully digital instruments for transactions, led many to surmise they would be a blockchain-based, gold-backed digital currency.
The advantages of gold-backed money are clear: it provides an in-built hedge against inflation, a solid foundation, but blockchain stepped it up a notch.
The Unveiling of the Physical ZiG Currency
All hopes of a digital currency were dashed on Friday as RBZ governor John Mushayavanhu announced the monetary policy for 2024, delayed from January to April, amid logistical challenges. Mushayavanhu announced many ambitious ideas, the main highlight being the new fiat currency, gold-backed but not a digital currency for now.
The fiat currency will take the name originally given to the Gold-Backed Digital Tokens (ZiG), but will have the advantage of being translatable. One ZiG currency will continue to be equivalent to 1 mg of gold, with prices directly linked to the price of gold on the world market. So, 1 ZiG will be worth roughly 7 US cents.
According to official documentation, this indirectly makes 1 US Dollar worth 13.5686 ZiG. Notes and coins, ranging from 0.5 to 200 ZiG, will become available on the 30th of April.
The conversion of a digital token to fiat currency is relatively simpler, faster and cheaper.
Zimbabwe claims to have 2.6 metric tonnes of gold reserves, with 1.5 tonnes onshore and a further 1.1 tonnes offshore. According to the conversion rate, Zimbabwe’s domestic currency in circulation (2.6 trillion ZWL) will be converted to 1.1 billion ZiG, which, at 1 milligram per ZiG, would require 1.1 tonnes of gold for backing.
1 Step Forward, Two Steps Backward
Zimbabwe had gotten segments of the media, both local and international, excited about the prospect of a digital, gold-backed currency. Africa, to date, has only one active central bank digital currency, the Nigerian e-Naira. At the same time, the Central African Republic and Ghana are in pilot and development phases, respectively.
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Zimbabwe’s step forward in creating gold-backed Digital Tokens has resulted in two steps backward by creating a gold-backed fiat currency.
All hope is not lost. The ZiG currency still exists alongside the gold-backed currency, the US Dollar, the South African Rand and a few other currencies that have legal tender status in the nation.
Creating ZiG currency may prove to be a stalling move while they get things right to transition to a gold-backed digital currency. Nonetheless, this has dealt a blow to the ambitions of a gold-backed digital currency in the short term.
