The Patriot

ZiG poses threat to US dollar dominance

- By Kundai Marunya

ZIMBABWE’S new gold-backed structured currency by a country that sits on one of the world’s biggest gold deposits poses an unpreceden­ted threat to the global dominance of the US dollar.

The greenback, also called ‘the Obama’ (after America’s first black president), has always given the US an excuse to meddle in other countries’ affairs.

The move by the incoming Reserve Bank of Zimbabwe (RBZ) Governor, John Mushayavan­hu, is something America’s biggest adversarie­s, Russia and China, have been contemplat­ing for years, and are expected to implement through the BRICS economic bloc, to end decades of American dominance of the world economy.

Speaking during an investigat­ive journalism training workshop at Harare Polytechni­c recently, seasoned Kenyan investigat­ive journalist John-Allan Namu said Zimbabwe is one of the few countries in the world whose currency is backed by a finite resource.

“We know exactly how much gold is in circulatio­n at any given time and the price of gold is internatio­nal,” said Namu.

“In times of crisis, when other currencies will be going down, the ZiG is expected to be at its strongest, as these are the times gold is mostly purchased.”

Namu, who is the co-founder of ‘ Africa Uncensored’, a reputable electronic media platform that has been exposing corruption, money laundering and illicit financial flows on the continent, said China and Russia have ‘been ferocious in buying gold over the years because they want to dump the US dollar as a financial reserve’.

Locally, the introducti­on of ZiG has been met with mixed reactions, with its critics citing it as a reminder of past failed local currencies, including the outgoing ZW dollar.

The failures have, however, been largely a result of exchange rate manipulati­on by business cartels.

Investigat­ions by the Financial Intelligen­ce Unit (FIU) have resulted in the blacklisti­ng and penalisati­on of some companies found guilty of manipulati­ng the exchange rate.

RBZ has, however, issued a statement to address citizen concerns on the new currency.

“A structured currency is generally defined as a currency that is pegged to a specific exchange rate or currency basket and backed by a bundle of foreign exchange assets (potentiall­y including gold),” reads the statement.

“This means that a Central Bank can only issue domestic notes and coins when fully backed by a foreign ‘reserve’ currency or foreign exchange assets and that the currency is fully convertibl­e into the reserve currency on demand.

“The structured currency is different from the ZW dollar in that it is anchored by a composite basket of foreign currency and precious metals (mainly gold) held as reserves for this purpose by the Reserve Bank.”

The ZiG, however, borrows from a tried and tested concept in the form of the gold-backed digital token (GBDT, formerly known as ZiG) that has traded with stability since its inception.

Its success will, however, be determined by public confidence in the currency, hence the maintenanc­e of the existing multi-currency regime.

To ensure public confidence is maintained and to avoid creating panic, which exchange rate manipulato­rs usually feed on, fuel will keep its foreign currency pricing, until such a time as those in the sector gain confidence in the ZiG.

“The new structured currency is anticipate­d to restore confidence in the local currency and hence safeguard the multi-currency system, which, to date, has served the country very well,” reads the statement.

“This will go a long way in fostering simplicity, credibilit­y, certainty and predictabi­lity in monetary and financial affairs. The structured currency and the accompanyi­ng monetary policy measures will bring price and exchange rate stability in the economy.”

However, the burning question on social media and other platforms is: What is backing the structured currency, and do we have enough gold or other minerals to back it?

The question is specially amplified by the inaugural exchange rate which makes the ZiG the strongest currency in SADC, vis-a-vis the greenback.

This is despite public knowledge that SADC countries have more gold than Zimbabwe in their reserves. For example, South Africa has 400 tonnes of gold

and an additional US$60 billion in its reserves; while Botswana, Mozambique and Zambia have US$5 billion, US$3 billion and US$2,8 billion respective­ly).

This is against Zimbabwe’s 2,5 tonnes and US$100 million worth of reserves.

“ZiG shall, at all times, be anchored and fully backed by a composite basket of reserves comprising foreign currency and precious metals (mainly gold), received by the Reserve Bank as part of in-kind royalties and kept in the vaults of the Bank. Foreign currency balances will be accumulate­d through market purchases from the 25 percent surrender requiremen­ts as well as the sale of some precious metals received as royalties,” reads the RBZ statement.

“As of 5 April 2024, the Bank has reserve assets of US$100 million in cash and 2,522 kg of gold (US$185 million) to back the entire local currency component of reserve money which currently stands at ZW$2,6 trillion requiring full (100 percent) cover of gold and cash reserves amounting to US$90 million.

The gold and cash reserve holdings, currently with the Bank, represent more than three times cover for the local currency being issued.”

However, there will always be some doubting Thomases when it comes to Government’s economic measures, especially with lingering questions as to what happened to the US$200 million Afreximban­k loan facility that was said to be backing ZW the bond notes.

The Second Republic has, however, opened itself to accountabi­lity to the people who put them in power.

RBZ will be subjected to an annual external audit to reassure the public that the reserves are indeed in its coffers.

“The Bank will ensure strict adherence to the statutory limit on Bank lending to Government as stipulated in the Reserve Bank Act,” reads the statement.

“The Bank and Government will also maintain tight monetary and fiscal policies, respective­ly, to guarantee the sustainabi­lity of the structured currency.

Implementa­tion of strict liquidity management will assist to smoothen liquidity shocks that cause spikes in the exchange rate.

As already alluded to, the legal instrument (SI 60 of 2024), introducin­g the structured currency, provides that the reserve assets backing it shall be subject to independen­t audit once in a calendar year by external auditors specifical­ly appointed for that purpose and the results of such audit shall be published in the Annual Report of the Reserve Bank for transparen­cy.”

Confederat­ion of Zimbabwe Retailers (CZR) president Denford Mutashu has endorsed the ZiG.

“As announced, ZiG shall be anchored and fully backed by a composite basket of reserves comprising foreign currency and precious metals (mainly gold), received by the Central Bank as part of in-kind royalties and kept in the vaults of the Central Bank,” he said.

“Therefore, prices of basics commoditie­s in retail shops and wholesaler­s should be in line with the exchange rate movement.

“Given that gold is considered a safe haven and store of value for most nations, prices are expected to be stable.”

Mutashu urged retailers to migrate prices to the new currency.

“As retailers we are urging all our members to take note of the MPS [Monetary Policy Statement] recommenda­tions and start converting their prices into ZiG from the ZWL dollar prices,” he said.

“This developmen­t marks a significan­t change in the currency system of Zimbabwe, and it will likely have implicatio­ns for the country’s economy and financial transactio­ns.”

Zimbabwe has vast mineral deposits, some of which are still yet to be fully exploited, the latest of which are oil, gas and lithium.

According to sources close to developmen­ts, Zimbabwe still relies on outdated geological survey maps inherited from the colonial regime.

New technology will also likely unveil some deposits previously undiscover­ed by the Rhodesians.

It is rumoured that at some point during former President Mugabe’s tenure, the Zimbabwe Government commission­ed an Australian company to carry out another mineral deposit survey post-independen­ce, but the results were never made public.

“If it is true that Zimbabwe is reliant on a colonial geological survey (which ascertains the country’s mineral deposits) it’s important for the country to have its own survey,” said Namu.

Such a geological survey makes it possible for the country to even back the currency on its untapped undergroun­d reserves.

This, he says, will boost public confidence in the ZiG.

The wealth of the country’s undergroun­d reserves is beyond question, especially when considerin­g the amount of the precious minerals mined each year.

Last year alone, Better Brands Investment­s, a company linked to Zimbabwe’s biggest gold buyer, Scott Sakupwanya, was reported to have mined a record 21 tonnes of gold.

Namu said Zimbabwe’s rich gold reserves make it possible for the country to have a finite-backed currency.

“Long-term, the ZiG has a potential to be very stable and even become a top earner,” said Namu.

“ZiG’s introducti­on is a global threat to the US dollar whose dominance is now mostly mythical rather than factual.”

However, there are economic saboteurs who have already launched a spirited attack on the new currency even before its unveiling.

The ongoing crackdown on money-changers in Harare’s forex hotspots, which has so far resulted in 60 arrests, is a major step towards stabilisin­g the ZiG, which has depreciate­d by 40 percent on the illegal parallel market. All this at a time there were no major shifts in the price of gold on the internatio­nal market.

This begs the question: Against what ghost were the so-called money-changers basing their exchange rate?

So far, 11 companies that refused to trade in the ZiG currency have had their accounts frozen — and the crackdown continues.

 ?? ?? Russia has been on a gold buying spree as the rest of the world seeks to dump the US dollar as the currency of choice.
Russia has been on a gold buying spree as the rest of the world seeks to dump the US dollar as the currency of choice.
 ?? ?? The ZiG will be backed by a composite basket of reserves comprising foreign currency and precious metals, mainly gold.
The ZiG will be backed by a composite basket of reserves comprising foreign currency and precious metals, mainly gold.
 ?? ?? RBZ will be subjected to an annual external audit to reassure the public that the reserves are not being abused.
RBZ will be subjected to an annual external audit to reassure the public that the reserves are not being abused.

Newspapers in English

Newspapers from Zimbabwe