Zimbabwe’s central bank introduces gold-backed digital currency for retail use

Zimbabwe’s central bank has launched its digital currency called the Zimbabwe Gold Coin (ZiG) as a means of payment. The ZiG coins, which can be stored in electronic wallets or cards, can be traded and used to make payments between individuals and businesses.

The details

• According to the bank, this measure is designed to encourage local investors to invest in national assets rather than United States dollars.
• This is a new direction from the previous plan announced in April 2023, which aimed to introduce the central bank digital currency (CBDC) as a method for Zimbabweans to only store value in the face of a depreciating local currency.
• The central bank said that banks will have dedicated accounts for ZiG and handle transactions with ZiG, just like local and foreign currency.  
• People who have physical gold coins can exchange them for gold-backed digital tokens through banks.
• The bank mentioned that once an individual purchases ZiG, they will have a ZiG account that shows the amount in milligrams of gold. This account will be separate from existing bank accounts. 

Key context

• The ZiG will be equivalent to the physical Mosi-oa-Tunya gold coin, launched in 2022. 
• The Mosi-oa-Tunya gold coin, named after the Victoria Falls in Zimbabwe, means “the smoke that thunders” in the native Tonga language.
• It was introduced in July 2022 as yet another means to combat the raging inflation plaguing the Zimbabwean economy.
• The Zimbabwean dollar failed due to severe distrust in the currency. It remains to be seen if ZiG will face the same fate.

Of note 

• There are concerns about its stability, given the price of gold and fluctuations, regulatory challenges, trust, and cybersecurity. 
• The Lake Street Review expressed concerns about the CBDC and individual liberty. 
• The report claims that a gold-backed digital currency can help control inflation. However, it expressed concerns that the CBDC might limit personal freedom.  
• The concern is centered around the central bank having control over transactions and earnings. 

Key background 

• Zimbabwe’s economy is heavily dollarized, with 76% of spending settled in United States dollars due to widespread distrust in the local currency.  
• The Reserve Bank of Zimbabwe (RBZ) launched the gold-backed CBDC to stabilize its hyperinflated local currency and provide an alternative store of value for Zimbabweans.  
• The International Monetary Fund (IMF) expressed concerns about Zimbabwe’s rushed introduction of its gold-backed CBDC, emphasizing the need for a careful evaluation to ensure that the positives of such a move outweigh the negatives.