THE launch of the new Zimbabwe Gold (ZiG) currency has raised debate, with analysts urging the authorities to adopt advanced technology in monitoring gold production to reduce mineral leakages and illicit financial flows, while ramping up bullion reserves.
NATHAN GUMA
On 5 April, new Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu launched the ZiG currency, that is backed by Zimbabwe’s reserves of US dollars and precious metals, particularly gold, to replace the Zimbabwe dollar that had been decimated by relentless inflation.
However, concerns have arisen over illicit mineral flows, whose disastrous effects could sabotage efforts to build national forex and gold reserves.
Zimbabwe has been losing an about US$100 million in monthly gold leakages, according to government estimates.
In its analysis of the Monetary Policy Statement, a social justice watchdog, the Zimbabwe Coalition on Debt and Development (Zimcodd), said adopting advanced technologies will help curb criminality as information such as the exact source of gold, holder of gold-buying licences, and amount of taxes paid on gold exports can be collected and analysed.
“The current rampant illicit gold trading, as reported by Al Jazeera’s Gold Mafia documentary, if not curtailed, will militate against the accumulation of gold reserves, which are crucial in supporting the value of the ‘structured currency’,” reads the analysis.
Zimcodd said the country is likely to face pressures to print more money.
For instance, the country has an adverse economic outlook coupled with the El Niño-induced drought that has affected the 2023/24 summer cropping season, creating enormous spending pressure on Treasury to cushion the vulnerable groups and the economy in general.
“Just like the norm globally, the Treasury will need help from the RBZ (money printing) to meet the demand of the pending humanitarian and economic crisis. The increase in ZiG money supply will only be permissible if there are enough gold reserves; hence, there is a need for a whole-of-government approach to curb illicit gold trading,” reads the analysis.
Civil society has been piling pressure on the government to join the Extractive Industries Transparency Initiative (EITI) to promote accountability in the mining sector and help stem illicit mineral flows, but the authorities have snubbed the calls.
The government’s main argument has been that the EITI is a foreign-driven initiative and that it does not come with clear opportunities for change.
Zimcodd’s analysis has also predicted that the expected increase in import bill is likely to render the ZiG worthless.
“The ZiG concept will require frequent auditing of physical gold and United States dollar cash reserves backing the currency by reputable and independent audit institutions.
“Suppose there are no trusted audits of the quantum of gold reserves in RBZ vaults versus issued structured currency (ZiG). In that case, the tokens risk suffering the same fate as bond coins and notes, which RBZ reportedly introduced under a US$200 million facility provided by Afreximbank. The market started to reject bond coins and notes like $2, $5, and $50 partly because authorities have printed more than they reported backing this surrogate currency, thereby causing increased depreciation pressures,” says Zimcodd.
“There is also a need to provide strong guardrails against gold leakages from the RBZ vaults, which can be caused by theft and fraud by unscrupulous public officials.”
While the RBZ has set minimum savings and time deposit interest rates on ZiG at 9% and 7.5% below the central bank’s deposit facility rate of 12.5%, respectively, interest rates on foreign currency account (FCA) deposits have remained unchanged at 1% and 2.5% for savings and time deposits, respectively.
“Lucrative interest on deposits ensures that excess money held by the public is kept in the bank rather than being used for speculative purposes. In other words, the higher the deposit interest rate, the greater the opportunity cost of holding non-interest-bearing cash,” reads the analysis.
“However, these interest rates on deposits must be above the inflation level. Otherwise, they are unlikely to lure economic agents into banking their excess ZiG funds. This is because when interest rates lag behind the inflation level, the value lost due to increased prices is much higher than the value gained on interest-earning ZiG deposit accounts.
“As such, there is no incentive for the public and investors to keep their extra money in such accounts in an inflationary environment. They would rather chase value by investing their free funds in riskier assets like stocks or buying US dollars in the parallel market.”
