By Kitsepile Nyathi, HARARE
Zimbabwe
Zimbabwe has introduced a new gold-backed digital currency as it battles to stop re-dollarisation, which President Emmerson Mnangagwa’s government fears will spell doom for the country’s fragile economy.
The country’s central bank
said the digital tokens, also known as Zimbabwe Gold (ZiG), that are dominated
in milligrams, can be used by both individuals and corporates to
transact.
They can be bought from banks
in local currency and in US dollars while goods and services will also be
priced in ZiG.
Bank clients can transact
using ZiG accounts through point-of-sale machines or via online payments.
In May, Zimbabwe unveiled gold
coins for peer-to-peer and peer-to-business transactions as well as to act as a
store of value as the country’s currency continued to lose ground against major
currencies.
Holders of physical gold coins
are able to exchange or convert them through the banking system into
gold-backed digital tokens.
This latest intervention hit
the market to lukewarm reception from economists and ordinary Zimbabweans, who
foresee an inevitable return to dollarisation.
Zimbabwe reintroduced its own
currency in 2019 after a decade of dollarisation that followed record breaking
hyperinflation under Robert Mugabe.
The Zimbabwe dollar has, however, been losing value rapidly against major currencies and this week it was trading at ZWL$5,252 to $1 and on the much-used parallel market $1 could fetch ZWL$10,000.
At the height of the Covid-19
pandemic, the government introduced a multi-currency system to protect the
local currency and authorities now estimate that 80 percent of transactions in
the economy are occurring in US dollars.
Advisory firm IH Securities
said Zimbabwe’s official exchange rate weakened to $1: ZWL$ 5,252,6558 in
September from $1: ZWL$4,604,6233 the previous month.
“The parallel market
experienced similar movements, with the rate increasing by 12.90 percent within
the same period,” IH Securities said in its latest bulletin.
“There was a marked growth in
Zimbabwe dollar liquidity in the market and we expect this upward trend to
continue into the final quarter of the year, exerting persistent pressure on
the exchange rate.”
According to the US’ Famine
Early Warning Systems, prices of some basic commodities increased by 20 percent
in September compared to August following increases of 15 and 18 percent in the
parallel and official market exchanges, respectively.
It is against this background
that economists feel the new digital currency will do little to halt the
collapse of the Zimbabwe dollar.
Steve Hanke, a professor of
economics at Johns Hopkins University, who has been tracking Zimbabwe’s
currency troubles, says the country “must dollarise as it did from 2009 to
2019.”
But the Confederation of
Zimbabwe Industries (CZI), which represents the majority of the country’s big
businesses, are pushing the government to explore measures to stop the full
dollarisation of the economy.
“Although the measures managed
to enhance stability, the economy has become more dollarised due to the
liquidity squeeze on the (Zimbabwe dollar),” CZI said in its policy brief for
September.
“Foreign currency
denominated-loans constituted 94 percent of the banking sector loan book as at
June 30, 2023.
“Thus, it is now imperative
for the government to determine the optimal Zimbabwe dollar liquidity that is
enough to prevent the economy from full dollarisation by default.”
Robert Mubaiwa, the head of
Zimbabwe’s foreign currency dominated Victoria Falls Stock Exchange, said a
digital currency will only work if the authorities instill confidence in the
market.
“What is critical in terms of
whatever is going to be introduced as currency is to have infrastructure that
helps people understand what the product is all about and how to use the
product in the long run,” Mubaiwa said.
“As long as we do not have
sufficient safeguards that inspire confidence it becomes very difficult, but we
believe the authorities are making the necessary steps that help in educating
the market and ensuring that the product is acceptable.”
Gold is Zimbabwe’s largest
export earner. Last year the country produced 35.2 metric tonnes and this year
the government says it is targeting 40 metric tonnes as it tries to push
revenues from the mining sector and breathe life into the ailing economy.
However, watchdogs say most of
the country’s gold is sold through unofficial channels, with a documentary
produced by a Qatar-based international news network exposing how individuals
linked to the country’s political elite smuggle the mineral to refineries in
Dubai.
Some smugglers claimed in a
secret recording that they had direct access to President Mnangagwa and his
family.
Zimbabwe’s central bank denied
any links to the smugglers after they claimed that they used it to launder
money through its gold buying schemes.
No comments:
Post a Comment