Opinion / Columnist
Zimbabwe's structured currency: Here's the abracadabra
08 Apr 2024 at 07:47hrs | Views
Against the backdrop of the inception of the supposedly gold-backed currency called the ZiG this week, there has been considerable confusion as to whether or not the Zig is a gold currency.
For all our readers and five million others who read the Sunday Express every week: the answer is: there is a big difference between a gold-backed currency and a gold currency.
Don't let the word structured get in the way.
The real question on the streets of Harare and Bulawayo today is: will this gold-backed currency – which has a curious QR code embedded in the notes - go the way of its predecessor: the Zim$?? Your guess is as good as mine.
A *gold currency* does not have all the algorithms associated with the ZiG. A gold currency means you walk around with pure gold coins in your pockets or you sleep on top of your gold coins if you decide to hide them under your mattress.
A gold currency means you walk around with pure gold (24-karat gold, composed of 99.9% gold) in your backpockets.
A good starting point when analyzing the ZiG is to look at its valuation at inception. How was this done? Was it done capricious or there was some rationality?
Sophistry, Or Chicanery
Let us do an independent mathematical calculation in order to assess the validity of the assigned value of the ZiG.
Gold is priced in US$s on the basis of fine ounces of a certain purity. At today's gold price, for example, gold is: 1 fine ounce =US$2328.70. A fine ounce is priced at US$2328.70
There are 31 100 milligrams of gold in 1 fine ounce of gold.
Therefore: if 31 100 milligrams = US$2328.70.
What about 1 milligram of gold? How much is it in US$ terms?
Mathematically: 1 milligram (ZiG) ÷ 31 100 milligrams that make up 1 ounce multiplied by the gold price US$2328.70 = 0.075.
That's the value of 1 miligram of gold in US$ terms. Rounding this to 3 decimals = US$0.075.
Since gold is primarily priced per fine ounce, all other gold prices (e.g. gold bars, tonnes) are derived from that.
The question then is: how much is this in Zim$ terms prior to ZiG?
1 milligram = US$0.075. 31 100 miligrams = US$2328.70.
Exchange rate: US$1 = Z$30 000.
Dividing US$0.075 by US$1 and multiplying the result by Z$30 000 should give us the mathematically calculated value of the ZiG.
Now this is where some sophistry or chicanery would have taken place.
It would seem that to reach the exchange rate of US$1 to 13 ZiG, the monetary authorities simply did the following abracadabra.
30 000 ÷ 2250 = 13.33 right?
30 000 ÷ 2250 = 13.33. You get it, right?
Whatever its warts and shenanigans, the Voodoo and abracadabra that went into this algorithm used by the RBZ to reach an exchange rate of US$1 to ZiG13.33, this gives hope to citizens. I note that this exchange rate puts the value of the ZiG at near par with the Botswana Pula.
I pray, therefore, that Zimbabweans should take maximum advantage of this monetary circumstance and go into some form of social contract and embrace this exchange rate and use it as a lever to turn their economy around.
As our old epithet says: It's the currency, stupid!!!
At a rate of $1 to 13 Zigs – somebody with 2 ZiGs in his pockets should be able to buy some zvihuta or maqebelengwana for his small house at a shebeen in Harare or Bulawayo.
Collet Ndlovu is a currency expert on the DSE News Network. He writes to the Sunday Express in his personal capacity and the views expressed are his alone
For all our readers and five million others who read the Sunday Express every week: the answer is: there is a big difference between a gold-backed currency and a gold currency.
Don't let the word structured get in the way.
The real question on the streets of Harare and Bulawayo today is: will this gold-backed currency – which has a curious QR code embedded in the notes - go the way of its predecessor: the Zim$?? Your guess is as good as mine.
A *gold currency* does not have all the algorithms associated with the ZiG. A gold currency means you walk around with pure gold coins in your pockets or you sleep on top of your gold coins if you decide to hide them under your mattress.
A gold currency means you walk around with pure gold (24-karat gold, composed of 99.9% gold) in your backpockets.
A good starting point when analyzing the ZiG is to look at its valuation at inception. How was this done? Was it done capricious or there was some rationality?
Sophistry, Or Chicanery
Let us do an independent mathematical calculation in order to assess the validity of the assigned value of the ZiG.
Gold is priced in US$s on the basis of fine ounces of a certain purity. At today's gold price, for example, gold is: 1 fine ounce =US$2328.70. A fine ounce is priced at US$2328.70
There are 31 100 milligrams of gold in 1 fine ounce of gold.
Therefore: if 31 100 milligrams = US$2328.70.
What about 1 milligram of gold? How much is it in US$ terms?
Mathematically: 1 milligram (ZiG) ÷ 31 100 milligrams that make up 1 ounce multiplied by the gold price US$2328.70 = 0.075.
Since gold is primarily priced per fine ounce, all other gold prices (e.g. gold bars, tonnes) are derived from that.
The question then is: how much is this in Zim$ terms prior to ZiG?
1 milligram = US$0.075. 31 100 miligrams = US$2328.70.
Exchange rate: US$1 = Z$30 000.
Dividing US$0.075 by US$1 and multiplying the result by Z$30 000 should give us the mathematically calculated value of the ZiG.
Now this is where some sophistry or chicanery would have taken place.
It would seem that to reach the exchange rate of US$1 to 13 ZiG, the monetary authorities simply did the following abracadabra.
30 000 ÷ 2250 = 13.33 right?
30 000 ÷ 2250 = 13.33. You get it, right?
Whatever its warts and shenanigans, the Voodoo and abracadabra that went into this algorithm used by the RBZ to reach an exchange rate of US$1 to ZiG13.33, this gives hope to citizens. I note that this exchange rate puts the value of the ZiG at near par with the Botswana Pula.
I pray, therefore, that Zimbabweans should take maximum advantage of this monetary circumstance and go into some form of social contract and embrace this exchange rate and use it as a lever to turn their economy around.
As our old epithet says: It's the currency, stupid!!!
At a rate of $1 to 13 Zigs – somebody with 2 ZiGs in his pockets should be able to buy some zvihuta or maqebelengwana for his small house at a shebeen in Harare or Bulawayo.
Collet Ndlovu is a currency expert on the DSE News Network. He writes to the Sunday Express in his personal capacity and the views expressed are his alone
Source - Colls Ndlovu
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