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Zimbabwe gold-backed tokens enter market

by Staff reporter
06 Oct 2023 at 01:32hrs | Views
Zimbabwe Gold (ZiG), the digital tokens backed by gold, has gained approval as a legitimate means of payment for domestic transactions, effective immediately. Transactions involving ZiG will be processed through the ZimSwitch and RTGS systems, similar to how transactions in Zimbabwean dollars and US dollars are handled, with the availability of swipe machines.

Each ZiG unit represents 1 milligram of gold, with a current value of $377.77 or 6.14 US cents. These tokens are supported by physical gold bars held by the Reserve Bank of Zimbabwe (RBZ). To ensure that the total number of ZiGs issued by the RBZ corresponds to the amount of physical gold in its vault, external auditors will conduct audits of these holdings.

ZiGs have previously been available as an investment or store of value. However, with the recent approval, if both the buyer and seller have ZiG bank accounts and agree to use these tokens for payment, they can use them for transactions.

According to Reserve Bank of Zimbabwe Governor Dr. John Mangudya, the value of ZiG will be aligned with the value of the physical Mosi-a-Tunya gold coin and will fluctuate with changes in the international gold price since it is backed by gold reserves held by the RBZ.

The Monetary Policy Committee of the RBZ approved the use of ZiGs for domestic transactions, in addition to their value preservation function.

Banks will maintain dedicated ZiG accounts and process transactions in ZiG similarly to local and foreign currency transactions. The intermediated money transfer tax (IMTT) for ZiG transactions will be half of the IMTT for foreign currency transactions, with relevant legal instruments to be published accordingly.

It's important to note that ZiG is not a currency but an investment instrument. It can be used for transactions when both parties agree, providing a means of both growing wealth and facilitating payments.

To address concerns about the RBZ's ability to maintain adequate gold reserves to back ZiGs, external auditors have been engaged to validate the availability and sufficiency of gold to support ZiGs, enhancing confidence among investors and the public.

Initially issued through the Central Securities Depository, ZiGs will now be transferred using the Rapid Transfer Gross Settlement (RTGS) system to support their new function as a medium of exchange.

Dr. Mangudya stated that these gold-backed digital tokens expand the range of value-preserving instruments available in the economy, improve divisibility, and broaden access and use by the public.

ZiGs represent digital versions of the actual gold held by the RBZ, with their daily value quoted on the RBZ website. Both institutions and individuals can purchase ZiGs using local or foreign currency from their banks. Since ZiGs can be divided down to the milligram, they closely reflect actual currency prices.

Holders of ZiGs can also benefit if the global gold market's value appreciates, providing a flexible hedge against inflation.

Transactions involving ZiGs will be cleared through ZimSwitch and settled via the RTGS system, simplifying the process for both buyers and sellers.

ZiG accounts will operate alongside nostro and local currency accounts in financial institutions, maintaining milligram units and conducting transactions in the same units. The RBZ has stated that there will be no account maintenance tariffs or charges for ZiG accounts.

Financial institutions are required to price ZiG transactions fairly and responsibly for the benefit of the public, with transaction pricing being the fee charged by a bank to facilitate the transfer.

Banks are not permitted to lend ZiGs or pay interest on holdings, as the RBZ is the sole issuing bank. Changes in the amount of ZiGs in circulation will only occur through issuance or redemption by the RBZ.

Customers holding physical gold coins can opt to tokenize them through the secondary market, with participating banks facilitating exchanges for investors seeking ZiG.

In cases where banks cannot exchange physical gold coins, they can approach the RBZ for redemption and payment in local currency, foreign currency, or ZiG after the vesting period.

Source - The Herald