The Reserve Bank of Zimbabwe to issue a gold-backed digital currency to function as the country’s legal tender

Zimbabwe’s Reserve Bank plans to introduce a gold-backed digital currency that will function as legal tender in an effort to combat the depreciation of the local currency against the US dollar. The initiative is aimed at allowing more Zimbabweans to hedge against currency volatility by swapping small amounts of Zimbabwean dollars for the digital gold token. The government had previously issued gold coins last year to absorb surplus liquidity and stabilize the local currency. The current exchange rate volatility in Zimbabwe is attributed to market anticipation of higher foreign currency supply during the tobacco auction season, which began in March. To date, Zimbabwe has shipped 54.9 kilos of tobacco for $307 million.

The Zimbabwean currency is valued at 1,001 ZWL for $1, but is frequently exchanged for 1,750 ZWL on the streets of Harare, the country’s capital. In March, annual consumer price inflation fell to a one-year low of 87.6% from 92% in February. The Reserve Bank of Zimbabwe Governor John Mangudya stated that the gold-backed digital currency is intended to “leave no one and no place behind”.

Zimbabwe’s economy has suffered greatly in the past, including a severe example of hyperinflation in the late 2000s, with prices doubling every few hours, causing the local currency to collapse. In 2009, the government adopted the US dollar as its primary form of currency to stabilize the economy, but it was not a long-term solution because it limited the government’s ability to control monetary policy. Zimbabwe reintroduced its own currency, the Zimbabwe dollar, in 2019, but the re-introduction has been plagued by rapid price hikes and volatile exchange rates.

The introduction of a gold-backed digital currency is seen as a potential solution to these challenges by leveraging the stability of gold as a backing asset to provide a more stable form of currency for Zimbabweans to store value and protect against currency volatility. In response to economic challenges, cryptocurrency usage has increased in several African countries, particularly in the Middle East and North Africa, which have the fastest-growing regions for crypto adoption, primarily for cross-border remittances, with over $566 billion in crypto transactions between July 2021 and June 2022, up 48% from the previous year, according to Chainalysis.