Mangudya ready to rollout digital dollar

PHILLIMON MHLANGA

 

The Reserve Bank of Zimbabwe (RBZ) is ready to roll out the proposed gold-backed digital tokens (GBDT) for transaction purposes ,under the code name ZiG, an acronym that stands for Zimbabwe Gold.

Business Times can report that banks have since been directed to configure their systems to allow the digital dollar to be accepted as  a legal tender for peer to peer  and peer to business transactions as part of efforts to preserve value. Bank cards denominated in ZiG will be issued.

The central bank governor, John Mangudya also disclosed that the RBZ has also engaged business lobby groups such as the Confederation of Zimbabwe Industries, the Zimbabwe National Chamber of Commerce and the Retailers Association of Zimbabwe.

It also comes after the RBZ recently concluded a dry-run to test the feasibility of a digital currency backed by gold.

“The bank is at an advanced stage in preparations for the rolling out of GBDTs for transactional purposes under the code or name ZiG,” Mangudya said.

He added: “Consultations with various stakeholders including the Confederation of Zimbabwe Industries and the Zimbabwe National Chamber of Commerce  and the Retailers Association of Zimbabwe have already been undertaken and banks are now configuring their systems to allow for the issuance of cards which will be denominated in ZiG.

“It is envisaged that the transactional phase will see GBDTs complimenting the demand for the US dollar in domestic transactions as retailers will be offered a safer, more convenient, and value-preserving medium of exchange. As such, appropriate awareness campaigns would be conducted in all provinces and districts of the country to educate the public on the use and benefits of GBDT.”

The development comes after the Cabinet in July last year approved the plan by the RBZ to introduce a Central Bank Digital Currency (CBDC).

The bank last year conducted a consumer survey. Mangudya said  71.7% of the respondents confirmed their willingness to use a CBDC if the bank introduced it.

“It is in this evidence-based context that the bank proposes to take the road towards CBDC in measured stages as the result of the survey gives the Bank sufficient impetus to move to the next stage.

Given that the Bank has accelerated efforts toward the digitization of gold through GBDT,” Mangudya said.

He added: “ The GBDT will primarily serve as an alternative investment instrument which shall be scaled up to be used for transactional purposes by the public. The GBDT allows investors to preserve their value, but above all allows for divisibility, as the milligram is one thousandth of a gram.

“Similar to the physical gold coins introduced by the Bank in 2022, the GBDTs were introduced in response to continued strong domestic investor demand for convenient and reliable market-based instruments for value preservation. The GBDTs are, therefore, an added convenient instrument that allows investors to enjoy the same value preservation benefits of physical gold without the security risk and indivisibility of holding physical gold coins.”

Mangudya said the potential of the GBDTs to transform the investment and currency markets was immense.

“Continued uptake of the GBDTs is, therefore, envisaged to sustainably anchor inflation and exchange rate expectations.

On account of their effectiveness in mopping liquidity, the GBDTs have since proved to be an effective monetary policy instrument with strong potential to help restore normalcy to the domestic financial and capital markets within the short term.

In addition, the divisibility nature of the digital gold tokens conforms to the national objective of leaving no one and no place behind in national development initiatives. This is again in line with the bank’s longstanding commitment towards financial inclusion as it enhances access and affordability for a wide cross-section of economic agents across all income brackets.”

The latest move comes in the midst of extremely high inflation. Zimbabwe’s annual inflation in July eased to 101.3% from 175.8% in June.

Analysts said the inflation rate, which represents the pace at which prices rise, is still high.

High inflation causes a reduction in the value of money, which can be translated as a decline in purchasing power over time.

High inflation rates result in companies passing on those costs to their customers, a move which will adversely affect aggregate demand as many will struggle to afford higher prices of goods and services.

The move to introduce a digital dollar , however, is an interesting approach by the RBZ.

But the International Monetary Fund has expressed concerns about the potential depletion of the country’s gold reserves.

It also comes at a time when many people want to exit the Zimbabwe dollar, converting the local currency to foreign currency, especially the American dollar to store value.

 

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