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ZiG is partly gold-backed, which begs the question, how much?
See point 162 in last quote in post #98:
Zimbabwe made gold legal tender and reintroduces gold standard
https://www.miningweekly.com/print-version/zimbabwe-central-bank-accumulates-almost-a-ton-of-gold-reserves-2024-02-13#:~:text=Zimbabwe%E2%80%99s%20central%20bank%20accumulated%20793%20kilograms%20%2825%2C000%20ounces%29,pay%20part%20of%20their%20royalties%20using%20the%20metal.www.pmbug.com
... yes... probably I'm being to harsh on them...@Peter89 - I think your concern is largely echoed by everyone that is skeptical of the Zimbabwe government and RBZ. Words are cheap (even cheaper than fiat). Time will tell.
A serious shortage of Zimbabwe Gold (ZiG) has hit the market despite monetary authorities releasing notes and coins last month amid fears the crunch will affect aggregate demand.
The Reserve Bank of Zimbabwe (RBZ) started circulating ZiG notes and coins last monthend. The ZiG replaced the Zimbabwean dollar, which had lost three-quarters of its value this year.
A survey conducted by Standardbusiness last week showed that ZiG notes were not readily available through banks. Shortages were observed in various sectors including transport, supermarkets and the informal market.
The situation is causing disruptions to businesses.
“We do not have enough ZiG from the central bank,” economist Gift Mugano told Standardbusiness.
“The size of the money supply is about ZiG$90 million and the size of our economy is about ZiG$ 20 billion.
“So, the question is how does the government liquidate and expect to provide enough cash in the market when you have that small share of ZiG?
“The central bank has not printed enough ZiG.
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GOVERNMENT has deployed thirteen mobilization groups across the country in a bid to increase production of gold which is backing the recently introduced Zimbabwe Gold (ZiG) currency.
Speaking at the first Gold Mobilization workshop, Minister of Mines and Mining Development, Winston Chitando said the government aims to boost the gold reserves and strengthen the ZiG's value.
The mobilization groups were tasked to encourage small-scale miners to formalize their operations and sell their gold through official channels such as Fidelity Gold Refinery (FGR).
"Recently our currency was anchored on gold hence the need to ensure that all gold trade be done through the formal channels and eventually find its way to Fidelity Gold Refinery, our sole gold exporter.
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"For 2024 from January to April, the gold deliveries to FGR sits at 8.4 tons against a target of 40 tons by the end of the year.
"It is imperative to note that for the first four months of 2024, the large-scale miners delivered 4.3 tons of gold to FGR against 3.4 tons for the year 2023 representing a 26% increase," he said.
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In its first public comment on Zimbabwe’s new gold-backed currency, the International Monetary Fund (IMF) has welcomed the introduction of the Zimbabwe Gold (ZiG) as a significant and positive policy action.
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According to an IMF spokesperson, the introduction of the ZiG represents a major step forward, supported by important monetary, currency, and fiscal policy measures. This move is seen as a crucial step towards economic recovery and stability in Zimbabwe.
“The introduction of ZiG represents a significant policy action accompanied by several complementary policy changes, including monetary, currency and fiscal policy measures,” the Washington based IMF spokesperson told Bloomberg.
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The introduction of the world's newest currency in April inspired a reggae artist to record a song praising the ZiG, or Zimbabwe Gold.
The catchy tune, titled “Zig Mari,” received generous play on state television and radio. The musician, Ras Caleb, received a car and $2,000 — ironically paid in greenbacks, not the new ZiGs — from a businessman with close ties to Zimbabwe's ruling party and President Emmerson Mnangagwa; he said he wanted to reward an act he considered “patriotic.”
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“Banks shall convert the current Zimbabwe dollar balances into the new currency which shall be called Zimbabwe Gold (ZiG) to foster simplicity, certainty, and predictability in monetary and financial affairs.”
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In an interview, economist Ms Chipo Warikandwa said Zimbabwe's monetary authorities have managed to hold fort, containing inflationary pressures and exchange rate stability.
"Zimbabwe has experienced deflation for the first time in many months with consumer prices dropping by 2,4 percent in May while currency stability, the ZiG since its introduction, gained 1,9 percent against the United States dollar.
"Looking at the rate of inflation, authorities seem to be on track to achieve a rate of between 2 percent and 5 percent by the end of the year, all this is anchored on the monetary policy framework the country has adopted, therefore, the ZiG marks a new era for Zimbabwe's economy with potential for redefinition of growth," she said.
The World Bank International Organisation for Standardisation (ISO) Committee has approved the change of Zimbabwe's local currency code from ZWL to ZWG (Zimbabwe Gold).
The ISO 4217 standard, which aids international trade, provides clarity and reduces errors in currency designation.
Dr. Josephat Mutepfa, Deputy Director of the Financial Markets-National Payment Systems and FinTech Department at the Reserve Bank of Zimbabwe (RBZ), conveyed this in a letter dated June 25 to Fanwell Mutogo, the Chief Executive of the Bankers Association of Zimbabwe.
"The Reserve Bank of Zimbabwe advises that World Bank ISO 4217 Committee has approved our request to change the Zimbabwe Currency Code from ZWL to ZWG (Zimbabwe Gold) effective 25 June 2024. It should also be noted that the minor units of the Zimbabwe Gold shall be denominated as 'cents'," Mutepfa said.
"The Codes ZWL and ZWG will run concurrently from the 25th of June to the 31 August 2024 to allow necessary system configurations by players. In this regard, the ZWL currency code will cease to be recognised from the 1st of September 2024."
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Treasury has granted authority for taxpayers to settle their obligations in Zimbabwe Gold (ZiG) and foreign currency on a 50-50 basis, while maintaining the legal provisions for economic agents to pay their taxes in the currency of trade.
The Ministry of Finance, Economic Development and Investment Promotion said it was still working on a comprehensive plan for a seamless transition from exclusive payment of taxes in the currency of trade to the domestic unit of account.
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Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, said in a statement yesterday that if, for example, a company transacted exclusively in local currency, tax should accordingly be paid in local currency (ZiG).
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Minister Ncube said that as part of a comprehensive review of the Framework of Tax Payments, the Treasury would in due course specify the taxes which will exclusively be payable in local currency and the necessary supportive legislation, with the approval of Parliament.
He said that the Government was pleased with the wide acceptance of the ZiG by economic agents and the general public.
The ZiG is backed by a basket of precious metals, mainly gold, and foreign currency reserves, with a combined value of about US$300 million.
Dr Mushavanhu said during the presentation of the MPS that there was US$80 million worth of ZiG in circulation in the market.
He had indicated earlier the central bank would lobby the Treasury to provide for payment of 50 percent of quarterly payment dates (QPD) taxes exclusively in ZiG, to strengthen the new currency.
Minister Ncube said that given the need to maintain the positive economic trajectory, "Treasury is stepping up to complement the Fiscal and Monetary Policy Framework aimed at further anchoring the currency, exchange rate and price stability."
Minister Ncube's latest announcement has been applauded by economists, who said it was the right policy direction as the country sought to grow market confidence in the new currency.
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The Zimbabwe Gold (ZiG) has significantly curbed inflation, achieving a zero percent month-on-month inflation rate for June 2024.
Presenting the price statistics, Mr. Aluwisio Mukavhi, the acting director-general of the Zimbabwe National Statistics Agency (ZimStat), explained that this zero percent rate indicates that prices, as measured by the all-items ZiG Consumer Price Index (CPI), remained stable between May and June 2024.
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Zimbabwe’s cabinet said it has approved a roadmap to abandon US dollars in favour of its bullion-backed currency in transactions, which will be unveiled by the nation’s Finance Minister Mthuli Ncube.
“On modalities to operationalise the ZiG currency as legal tender for use in the economy, a dedollarisation roadmap is now in place,” Information Minister Jenfan Muswere told reporters Tuesday at a post-cabinet briefing held in the capital, Harare. The timeframe for its implementation will be presented by the finance minister, he said, without providing details on when Ncube will make the announcement. A Treasury spokesperson didn’t immediately respond to a text message seeking comment.
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The nation’s President Emmerson Mnangagwa hinted at the possible adoption of the ZiG as the sole currency as early as 2026, ahead of an initial 2030 deadline – a proposal supported by bankers.
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The currency has been sliding in value on the black market and faces public resistance despite the government unleashing police and the intelligence services on people rejecting the new money.
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The official rate on Thursday was pegged at US$1 to ZWG13.8 - while on the black market it traded at around twice as much to the US dollar.
Retailers are forced to take payments in ZWG while some of their suppliers demand US dollars or South African rand.
It's even worse for importers, without adequate foreign currency provision from the government.
Those who continue to take the ZWG have resorted to what is called "forward pricing" whereby they sell their products at black market rates.
This gives them leverage to buy forex on the black market at a premium.
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When the government introduced ZWG, there were promises that by now one would be able to buy fuel or gas using it. That's yet to happen.
The currency is not recognised outside Zimbabwe.
"The only things I pay for in ZWG are rates and electricity. Everything else is either in black market prices or hard currency," Ncube said.
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Zimbabwe said the steep devaluation of its gold-backed currency last month has triggered shortages of bread, sugar and other staples in its formally regulated stores, suggesting the country’s latest effort to stand up its local unit is still struggling.
“This is attributable to arbitrage, as informal retail economic agents seek to capitalise on exchange-rate differentials,” Information Minister Jenfan Muswere said on Tuesday.
He cited reports of hoarding items to sell in street markets and other unregulated outlets at the higher unofficial exchange rate.
Zimbabwe devalued the ZiG – short for Zimbabwe Gold – by 43% on 27 September after it slumped on the unofficial market amid doubts the country’s sixth attempt at a local currency since 2009 would work.
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The decline has come despite the ZiG being backed by gold and hard-currency reserves held at the central bank.
“You may have the gold reserves but what the central bank lacks is credibility,” Anand said. “People don’t trust the currency.” The implications of that lack of confidence were playing out on the nation’s streets.
The widening gap between the official and unofficial ZiG rates is funneling business into the informal sector of the economy, where participants sell exclusively in dollars, at the expense of the formal sector, which has to accept payment in local currency.
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The dominance of the informal economy can be illustrated by the fact that most Zimbabweans, rather than shopping at formal retail stores such as Pick’N’Pay and OK, buy their groceries from rows of minivans parked on the street opposite the stores. These minivans are packed full of products smuggled in from South Africa, which are sold for a fraction of the price of the larger grocers. Even for local suppliers, the volatility of the currency makes it risky to sell to the formal sector. A Zimbabwean farmer based in the capital Harare advised us that any meat sold to Pick’N’Pay will be on 30-day payment terms and in local currency, which means the value could drop substantially by the time he receives payment. This, in turn, causes inflated pricing for the larger retail stores. Meanwhile, if he sells the meat to the informal trader, the price is in USD and is paid immediately.
These examples illustrate the core problem plaguing the local currency: for the majority of citizens, the informal market has simply become the easier and more convenient means of conducting business. The ZiG is also lagging behind in terms of circulation in the economy. More than four months after the currency was introduced, it is common for many Zimbabweans (particularly those not employed by the government) to have never even seen a ZiG bank note.
The government has indicated that it plans to increase penalties against those involved in “unjust price hikes, manipulation of the ZiG, smuggling, and all forms of unfair trade practices”. While such plans are indicative of the government’s determination to tighten regulations against the informal market and increase the use of the ZiG in the economy, it remains unlikely that the plans will successfully penalise the 80% of the population that survives through the informal economy.
It is clear that the government’s roadmap towards de-dollarizing and adopting the ZiG as the country’s sole currency will likely face several implementation challenges over the next five years. The government has yet to provide any details of this roadmap. Meanwhile, formal businesses in Zimbabwe will continue to conduct most of their financial transactions in USD. Overall, the ZiG’s potential impact looks weak, neither detering the use of foreign currency in the informal economy nor eroding the USD’s influence on the formal economy.
The government’s use of penalties to force the ZiG on Zimbabweans will likely backfire, instead increasing the use of the informal economy and potentially causing larger, tax-paying formal businesses to exit the country. The ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF) – is also unlikely to completely ban the USD, which its senior members still covet and need to keep the mining sector – which is not conducted in ZiG – afloat.
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RENOWNED lawyer, Thabani Mpofu has poked holes on the legal status of the country's latest currency, Zimbabwe Gold (ZiG), arguing that legislation supporting it has expired.
The ZiG was launched in April 2024 and became the nation's sixth attempt at a stable currency in 15 years. It was introduced at a rate of 13.6 ZiG per United States dollar and has since lost almost 80% of its value on the black market.
Mpofu, who is famous for representing former Citizens' Coalition for Change (CCC) leader Nelson Chamisa in the historic court challenge over 2018 disputed election results, said ZiG is nolonger legal tender.
"Unless I missed the law when it was promulgated, the ZIG is no longer currency. The ZIG was operationalised by the promulgation of the Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Zimbabwe Gold Notes and Coins) Regulations, 2024," said Mpofu.
By law, a statutory instrument promulgated in terms of the Presidential Powers Act lapses at the end of six months unless prior to its lapse, the instrument is validated by primary legislation.
"In this case, the six (6) months would have lapsed on the 4th of October 2024. This means that by the end of that day, the ZIG ceased to be currency.
"It is not possible for the statutory instrument once it has lapsed to be validated by legislation.
"Further, the statutory instrument having lapsed no further regulations identical to the lapsed ones can be promulgated within six (6) months of such lapse. This means that no statutory Instrument extending the life of ZIG can be issued in terms of the Presidential Powers Act," the prominent lawyer argued.
Mpofu reiterated Zimbabwe was in an unenviable situation that has to be remedied urgently.
"For these reasons, the ZIG is no longer legal tender. The consequences are immense. I think we have a big problem on our hands. (I sincerely hope for the life of me that the authorities did the needful. If they didn't, this needs to be fixed by the only lawful way available)," he said.
The RBZ has responded to recent claims questioning the Zimbabwe Gold Currency’s (ZiG) legal validity, emphasizing that the currency’s legal status remains firmly intact and compliant with existing statutes.
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The RBZ clarified that the Finance Act, which has recently been enacted, incorporates the provisions of the original statutory instrument, SI 10 of 2024, ensuring that the ZWG’s legitimacy as a legal tender remains solid. The Act is not intended to “revalidate” the currency but to confirm its continuity under Zimbabwean law.
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