Zimbabwe recently introduced a new gold-backed digital currency called the ZiG

ZiG stands for Zimbabwe Gold. Zimbabwe decided to implement this reform to stabilize its economy and tackle inflation. This new currency is structured to be backed by gold, foreign currencies, and precious minerals, ensuring greater stability and value retention compared to the previous Zimbabwean dollar, which had faced significant devaluation and hyperinflation issues.

ZiG gold backed digital currency for stability

The ZiG aims to provide simplicity, certainty, and predictability in financial transactions within Zimbabwe. It is legal tender that circulates alongside the existing multi-currency system. This digital currency also has a vesting period of 180 days and can be used as collateral for loans, which might appeal to both individual and corporate users looking for secure investment options.

Zimbabwe’s broader economic stability plan

This move is part of Zimbabwe’s broader economic strategy to address longstanding financial instability and to restore confidence in the national currency system. However, the effectiveness of the ZiG in the long run remains to be seen, as it depends on the government’s ability to maintain sufficient gold reserves and manage the currency’s introduction smoothly without triggering unintended economic consequences.

Background and Rationale for introducing the ZiG

For decades, Zimbabwe has grappled with severe economic issues. Hyperinflation reached its peak in 2008, forcing the country to abandon its currency and adopt a multi-currency system in 2009, predominantly relying on the US dollar. However, the reintroduction of the Zimbabwe dollar in 2019 failed to stabilize the economy, leading to its rapid devaluation and a return to high inflation rates. The introduction of the ZiG is the latest attempt by the Reserve Bank of Zimbabwe to stabilize the country’s currency and combat inflation.

Structure and Support of ZiG

The ZiG currency is backed by both gold reserves and a basket of foreign currencies, aiming to leverage the inherent stability of gold to support its value. As of the currency’s introduction, the Reserve Bank of Zimbabwe reported having sufficient gold and foreign currency reserves to back the new currency adequately. Specifically, the central bank holds approximately 1.1 tonnes of solid gold domestically and an additional 1.5 tonnes abroad, alongside $100 million in cash and precious minerals.

Features and Functionalities

The new gold-backed currency operates as a digital token with a vesting period of 180 days and is recognized as a legal tender and a store of value. It can be used alongside the Zimbabwean dollar and bond notes. The digital nature of the ZiG allows for transactions to be conducted electronically, which is a step towards modernizing the country’s financial system. Additionally, these tokens can serve as collateral for loans, providing a secure investment alternative and mopping up excess liquidity in the market​.

Skepticism and critics

However, the launch has been met with skepticism from various economists and financial experts. Concerns primarily focus on whether the backing reserves are adequate and whether this new approach will address the underlying economic problems such as high unemployment, poverty, and reduced industrial productivity​.

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