Uptake of ZiG tokens improves

APPETITE for gold-backed digital tokens improved this year amid anxiety after the authorities hinted at far-reaching monetary reforms to defend the value of the local currency, a new report by the Confederation of Zimbabwe Industries (CZI) has shown.

BERNARD MPOFU

 Last July, Zimbabwe’s central bank introduced physical gold coins as an alternative store of value to the US dollar in the economy. In trying to complement the physical gold coins, the Reserve Bank of Zimbabwe (RBZ) introduced the gold-backed digital tokens known as ZiG in May 2023.

The introduction of the gold-backed digital tokens came at a time when the government was implementing a raft of measures to curtail inflation in the economy in order to rescue the local currency from being rejected by the market.

 With effect from 5 October 2023, ZiG was announced as one of the means of payment for domestic transactions. The digital tokens had been characterised by very limited uptake as reflected by the value of gold purchased.

 “However, in 2024 there is a sudden renewed interest in the purchase of ZIG. In terms of milligrams, the amount of ZiG that has been purchased in February 2024 increased by 22.8% compared to what had been purchased in the month of January 2024 to about 159 million milligrams (159 kg of gold),” CZI says in its latest research note on currency and inflation developments.

“This also follows from speculation that ZiG could be the ‘structured currency’ that was hinted at being formally adopted as the official currency. However, the number of applicants for ZiG remains very low and has ranged between 1 and 45 applicants nationwide since inception. This means that while the uptake of ZiG by the general public remains low, there are investors that have developed increased interest in ZiG.

 “The ZWL$ continues to depreciate, both on the formal and the parallel market. Since January 2024 ZWL$ has lost 49% of its value on the formal market and 30% on the parallel market.”

 The CZI said the faster depreciation on the formal platform has helped reduce the parallel market premium, which decreased from 66% in January 2024 to 44% in February 2024.

 “The decline in the premium is a positive development for formal businesses who are struggling to attract USD sales due to the 10% trading margin above the interbank market. Near-convergence of the parallel market and the formal exchange rate gives formal business a fighting chance,” the CZI says.

“Therefore, measures that address currency depreciation while ensuring convergence of the official and the parallel market exchange rate remain critical. Despite the convergence, the rate of depreciation of the ZWL$ is worrisome as this is directly responsible for the inflationary environment. The need for a consistent adjustment of prices, tariffs as well as all service charges in line with the depreciation of the exchange rate makes the investment environment difficult to operate in. The delay in coming up with a solution to the currency crisis makes it difficult to protect the currency from rejection by the market.”