The Reserve Bank of Zimbabwe (RBZ) has revealed its plans to introduce a gold-backed digital currency as legal tender to try and stabilize the Zimbabwean dollar.
This decision comes as the country’s currency faces extreme volatility, with its value against the US dollar plummeting significantly over the past months.
This digital currency becomes yet another currency introduced in less than a year after Mosi-Oa-Tunya gold coins which were expected to rescue the unstable local currency.
The RBZ last year also introduced gold coins which it said would be in use in the country. This created a frenzy with companies and wealthy individuals buying the coins which were at a cost of us$1800. This however did not help the ailing economy’s poor majority as they could not afford the astronomical amount. The government promised to introduce smaller denominations of the coin but to date, no action has been taken.
The proposed digital tokens will be backed by the country’s gold reserves, which will be held by the central bank. Through the introduction of the gold-backed digital currency, RBZ aims to offer a way for people holding Zimbabwean dollars to exchange their money for the token, providing them with a hedge against the country’s volatile currency.
To date, the Zimbabwean dollar’s value has been fluctuating significantly, with 1 US dollar being worth around 1,000 ZWL on the official market, compared to 150 Zimbabwean dollars only a year ago; this is partly because Zimbabwe operates a dual-currency system, utilizing both the Zimbabwean dollar and the US dollar.
In August 2021, RBZ announced that it would create a central bank digital currency (CBDC). This step follows a trend among African countries that are exploring the potential benefits of CBDCs. For example, Nigeria launched its eNaira digital currency in October 2021.
The introduction of a gold-backed digital currency in Zimbabwe could potentially provide a more stable alternative to the Zimbabwean dollar and help restore confidence in the country’s financial system. Nevertheless, the success of this initiative will depend on factors such as the central bank’s ability to maintain adequate gold reserves, public trust in the digital currency, and the government’s commitment to addressing broader economic challenges.