On October 5th, 2023, Zimbabwe witnessed a significant shift in its domestic payment landscape with the introduction of Zimbabwe Gold (ZiG), a novel means of payment backed by physical gold. We focus on the implications and motivations behind this policy change, exploring the potential impact on financial stability, risk mitigation, and the broader transition towards digital payment methods.
The introduction of ZiG represents a departure from the conventional means of payment for domestic transactions, which predominantly involved local and foreign currencies. The government’s decision to introduce a gold-backed currency aligns with a dual purpose – not only as a means of payment but also as a vehicle for value preservation. ZiG is uniquely backed by a milligram of physical gold, providing an intrinsic value that distinguishes it from traditional fiat currencies. A noteworthy feature of the ZiG implementation is the application of the Intermediated Money Transfer Tax (IMTT), which is set at half the rate applicable to foreign transactions. This move reflects a conscious effort to incentivize the use of ZiG for domestic transactions, making it a more attractive option for taxpayers. By reducing the tax burden associated with ZiG transactions, the government aims to facilitate its adoption and integration into the existing financial ecosystem.
The operational framework of ZiG involves transactions being cleared on the ZimSwitch platform and settled through the Real Time Gross Settlement (RTGS) system. Banks are required to maintain dedicated ZiG accounts, treating ZiG transactions with the same level of importance as local and foreign currency transactions. Importantly, the absence of tariffs or account maintenance charges for ZiG transactions promotes accessibility and encourages widespread usage. A notable restriction imposed by the government is the prohibition of lending in ZiG by banks. This regulatory measure is likely aimed at preventing speculative activities and maintaining the stability of the gold-backed currency. By restricting lending in ZiG, the government seeks to ensure that ZiG remains a secure and reliable means of payment rather than a speculative financial instrument.
To facilitate the ease of ZiG transactions, the government has authorized the issuance of ZiG cards. This move aligns with a broader trend in the global financial landscape towards digitalization and contactless payments. Individuals can conduct transactions through point-of-sale machines and online payment methods, reflecting a strategic move towards reducing reliance on cash-based transactions. An important aspect of the ZiG system is its flexibility in redemption and payment. While ZiG is backed by physical gold, individuals are permitted to redeem and receive payments in the local currency. This dual functionality provides individuals with options, allowing them to choose the currency that aligns with their preferences and financial needs.
The introduction of ZiG signifies a deliberate effort by the government to diversify the domestic payment system. By offering an alternative backed by a tangible asset, the government aims to provide citizens with choices and reduce reliance on conventional fiat currencies. This diversification may contribute to increased financial stability by introducing an additional layer of security and reliability into the payment system. The ZiG initiative is not just about introducing a new physical currency but is indicative of a broader strategy to promote digital payment methods. With the issuance of ZiG cards and the encouragement of online transactions, the government is aligning its financial system with global trends that prioritize digitalization for its efficiency, speed, and transparency.The reduced IMTT on ZiG transactions serves as a direct benefit for taxpayers. By lowering the tax burden associated with ZiG, the government incentivizes individuals and businesses to adopt this new payment method. This aligns with the broader goal of encouraging financial inclusion and reducing the reliance on traditional cash-based transactions.
However, an important and significant question to accountants, auditors and tax professionals is how ZiG will affect income statements, tax computations, financial statements e.t.c? We also pose another question: according to S37AA, how do we treat ZiG when one transacts in ZiG? The last question, when one purchases ZiG, does the IMTT apply, or it only applies when settling transactions. We will delve into these questions in future engagements of Matrix Tax School.
Therefore, the introduction of ZiG represents a strategic move by the Zimbabwean government to reshape its payment landscape. The gold-backed currency not only provides an alternative means of payment but also signifies a commitment to value preservation and financial stability. The implementation of ZiG reflects a forward-thinking approach that embraces digitalization while leveraging the intrinsic value of physical gold. As Zimbabwe transitions towards a more diversified and technologically advanced financial system, the implications of ZiG are likely to resonate across various sectors, contributing to the nation’s economic resilience and adaptability in an evolving global financial landscape. Given the advantages, ZiG still leaves several accounting and tax questions unanswered.