OPINION | Big change: The dilemma of ZiG conversion

New ZiG notes and coins now out (AP Photo/Tsvangirayi Mukwazhi)

By Panashe Kaletu

Zimbabweans have begun using Zimbabwe Gold (ZiG) notes and coins, as banks have gathered the local currency from the Central Bank for distribution across the country. The official exchange rate at the launch of ZiG was $1:13.56 ZiG, with the black market rate standing at around $1:20 ZiG.

Despite efforts by authorities, the Financial Intelligence Unit and law enforcement agencies have apprehended over 80 illegal money dealers in Harare for manipulating the local currency rate.

Since its inception, people have been using electronic money, which was converted from ZWL to ZiG using the rate (1 ZiG = 2500 ZWL = $0.0737). Transactional ease has been experienced with these rates, conversions, and decimals. However, with the commencement of circulation of coins and notes today, there remains a quandary regarding the applicable rates and the conversion of smaller denominations such as 10 cents or 50 cents to ZiG. This could create difficulties in transactions, especially for public transport operators like combis.

One ZiG is said to represent the value of one milligram of gold priced at $0.0737, making $0.10 equivalent to 1.356 ZiG, and $0.20 equivalent to 2.712 ZiG. There is already confusion about the worth of 10 cents and 20 cents in ZiG, and there is an impending issue concerning how to peg these small prices in ZiG as money begins to change hands.

ZiG is a structured currency, unlike the Bond notes, which were a fiat currency. A structured currency is backed by a physical commodity, in this case, gold, whereas a fiat currency holds no intrinsic value and is only backed by the government’s guarantee.

The value of money is determined by what we collectively agree it to be; for example, a US$100 bill is just a piece of paper, at a particular circumstance we agree that it is worth US$5. Similarly, we can agree on the value of $0.10, $0.20, and so on in ZiG.

To address this issue, we can draw from the experience of 2010 to 2013/14, when 4 Rand was accepted as 5 Rand. 4 Rand was accepted as change in combis and paid at misika without any issue. Similarly, we can agree on a conversion rate for $1 to be 14 ZiG, and $0.50 to be 7 ZiG, without any manipulation of the exchange rate. This would mean that:

$0.10 = 1 ZiG

 $0.20 = 3 ZiG

$0.30 = 4 ZiG

$0.40 = 6 ZiG

$0.50 = 7 ZiG

$0.60 = 8 ZiG

$0.70 = 10 ZiG

$0.80 = 11 ZiG

$0.90 = 13 ZiG

The introduction of ZiG notes and coins presents a unique challenge in terms of exchange rates and conversions. However, by understanding the concept of money and agreeing on a conversion rate, we can overcome this hurdle and ensure a smooth transition to the new currency.