Zimbabwe has introduced a new digital currency known as Zimbabwe Gold (ZiG), backed by gold reserves, with the aim of countering the resurgence of dollarization. This move comes as the government under President Emmerson Mnangagwa seeks to prevent further economic instability in the nation.
The digital tokens, measured in milligrams, are now available for use in transactions by both individuals and businesses, as regulated by the country’s Central Bank. These tokens can be valued in U.S. dollars and the local currency. They can be acquired through banks using ZiG, while bank customers can conduct purchases using ZiG accounts through point-of-sale (POS) systems or online payments.
In July 2022, Zimbabwe introduced gold coins for peer-to-peer and peer-to-business transactions, as well as for preserving value in the face of the ongoing depreciation of the local currency against major foreign currencies. Owners of physical gold coins have the option to exchange or convert them into digital tokens backed by gold, facilitated through the banking system.
In 2019, Zimbabwe reinstated its own currency after a decade of dollarization that followed severe hyperinflation during Robert Mugabe’s rule. However, the Zimbabwean dollar rapidly depreciated against foreign currencies. As of this week, it was trading at a rate of ZWL$5,252 to $1, while on the black market, one U.S. dollar could be purchased for ZWL$10,000.
Amid the challenges posed by the COVID-19 pandemic, the government had implemented a multi-currency system to support the local currency. Currently, it is estimated that 80% of economic transactions are conducted using U.S. dollars.
Zimbabwe is a major exporter of gold, having produced 35.2 metric tonnes last year. In 2023, the government aims to increase this production to 40 metric tonnes, with the goal of boosting the income from the mining sector and revitalizing the struggling economy. However, a significant portion of the country’s gold is believed to be sold through unofficial channels, as reported by watchdogs. A documentary by Al Jazeera exposed how members of the political elite in the southern African nation were involved in smuggling gold to refineries in Dubai.
The Reserve Bank of Zimbabwe has denied any connections to the gold smugglers, refuting claims that they used the Central Bank to launder money through its gold purchasing activities.
Escalating inflation is putting pressure on President Emmerson Mnangagwa’s administration as the country still remembers the economic turmoil endured during Robert Mugabe’s nearly four decades of rule. Hyperinflation had compelled Zimbabwe to abandon its own currency in 2009, opting instead to use foreign currencies, predominantly the U.S. dollar.