At present, in Zimbabwe, digital currencies largely emerge from private sector innovation. Banks and mobile telecommunications companies have been at the forefront of this development through the provision of various digital payment solutions such as card payments, electronic funds transfer (EFT), ZIPIT and mobile money wallets, including EcoCash and OneMoney, among others.
These private-sector efforts have significantly improved financial inclusion, as many previously unbanked segments of the population have increasingly been incorporated into the formal financial system.
However, as time progresses, it will be important to assess whether the Reserve Bank of Zimbabwe (RBZ) should introduce part of the country’s currency in the form of strictly digital ZiG. Such a currency would need to be legal tender, widely used, accessible to even the remotest economic participants, and trusted by the general public.
Currently, the central bank issues notes and coins, which remain the most widespread form of sovereign currency in Zimbabwe. To clearly distinguish private sector digital currency from central bank issued money, it is important to note that notes and coins are legal tender and cannot legally be refused as a means of payment by any economic participant. This is unlike mobile money wallets and other digital payment methods, which can be rejected due to system incompatibilities or other constraints. By this virtue, a pervasive Central Bank Digital Currency (CBDC) could offer distinct advantages over private sector-led digital payment solutions.
This article discusses the relevance of a retail CBDC that the RBZ could consider introducing alongside existing notes and coins. Ultimately, the central bank’s long term objective could be to replace physical cash as legal tender by gradually supplanting it with a local CBDC.
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CBDC or physical cash?
Before embarking on the issuance of a pervasive retail CBDC, the RBZ must assess whether such a digital currency would have a realistic chance of surviving and thriving within the economy. Several key questions and concerns would need to be addressed.
In Zimbabwe, physical cash is widely accessible to anyone capable of handling notes and coins. A CBDC, by contrast, may require access to digital devices such as smartphones, computers, or other internet-enabled tools. The major drawback here is that some sections of the population have limited access to digital infrastructure, including smartphones, reliable internet connectivity and electricity.
For this reason, the RBZ should strive to make its CBDC available through simple platforms, such as basic feature phones, as well as physical cards embedded with scannable QR codes. Ideally, the CBDC should be usable even in the absence of internet connectivity or sophisticated digital infrastructure.
Another critical question is whether the general public would trust a CBDC. In Zimbabwe, households and businesses have often exhibited mistrust toward private financial service providers such as banks and mobile money companies. High transaction fees, as well as irregular and opaque charges, have contributed significantly to this trust deficit.
As a result, many individuals immediately withdraw their digital funds and convert them into cash, which they prefer to hold personally.
This mistrust has, at times, extended to the central bank itself. The hyperinflationary episode of 2007-08, which many locals associate with financial indiscipline and poor policy management at the RBZ, has left lasting scars.
Consequently, confidence in the local currency has been undermined, encouraging the hoarding of foreign currency as a store of value.
To address shortcomings in private financial intermediation, the RBZ may need to introduce a pervasive CBDC to help restore confidence in domestic digital finance. If the central bank does not charge fees for holding CBDC balances, locals may increasingly find the hoarding of physical notes and coins unattractive. This, however, must be accompanied by the RBZ maintaining its improved standards of integrity, transparency and policy consistency in order to rebuild trust in the currency.
Although many businesses are steadily shifting toward cashless payment methods, digital payments are still not universally accepted. Physical cash remains the preferred and most reliable medium of exchange, particularly in rural areas, townships and other peripheral regions. For this reason, widespread CBDC adoption would require coordinated efforts involving government, financial institutions, businesses, and communities.
Physical cash is tangible and can be stored securely in safes or deposit boxes. However, its physical nature also makes it vulnerable to theft, robbery, fire and other losses. For a CBDC to be viable, the central bank must ensure that it offers superior security features compared to cash.
Encryption, robust authentication mechanisms and transaction confirmations via SMS or identification for high-value transfers could enhance security. These features could also make CBDC more attractive than cryptocurrencies, given that it would be issued by a legitimate sovereign authority rather than private entities.
Cash is generally limited to basic functions such as payments, savings, and informal credit. A CBDC, however, could support value-added services, including integration with mobile money platforms, bank accounts, e-commerce systems and bill payment services. It could also allow for programmability.
Programmability means that CBDC could be restricted to purchasing certain goods and services while excluding others.
For instance, funds disbursed to pensioners or recipients of social welfare programmes could be programmed to prevent spending on non-essential items such as alcohol. A CBDC could also be designed to expire after a specified period, such as three months, in order to encourage spending and stimulate economic activity.
Additionally, a CBDC could be programmed for use only within specific geographic regions, such as a particular province, to support targeted regional development initiatives. Such features would mainly apply to government-issued grants and subsidies rather than privately-earned income.
As highlighted above, a widespread CBDC in Zimbabwe would likely require deep government involvement. Initiatives such as distributing government to people (G2P) payments through a CBDC could significantly accelerate adoption. These may include pensions for former government employees, social grants for vulnerable groups and emergency cash transfers during periods of crisis.
Similarly, enabling people to government (P2G) payments — such as taxes and utility bills — through a CBDC would further boost usage. Public awareness campaigns and educational programmes would also be essential to inform citizens about the availability, benefits and functionality of a CBDC.
Conclusion
It is vital for Zimbabwean central bank officials to remain informed about the feasibility of introducing a CBDC that can be used pervasively within the economy. At some point, a widely accessible CBDC will cease to be a theoretical concept and instead become a necessary instrument for promoting financial inclusion and stability.
Globally, retail CBDCs remain largely conceptual, with many central banks still assessing their effectiveness.
However, the rapid evolution of financial markets and economic systems suggests that retail CBDCs are likely to be implemented within the next few years. If Zimbabwe identifies sufficient benefits in adopting a retail CBDC, it should not hesitate to introduce it to the public.
- Tutani is a political economy analyst. — tutanikevin@gmail.com