Zimbabwe Introduces Gold-Backed Digital Currency to Stabilize National Currency
Zimbabwe’s central bank, the Reserve Bank of Zimbabwe (RBZ), is set to introduce a gold-backed digital currency to stabilize its rapidly depreciating currency, according to a report by The Sunday Mail, a local media outlet.
The digital currency will be issued and backed by RBZ’s holdings of gold, and will be used as legal tender for domestic transactions. The move comes as the Zimbabwe dollar (ZWL) continues to depreciate against the US dollar, currently trading at 1,001 ZWL at the official rate, but commonly traded at 1,750 ZWL on the streets of the capital Harare, according to Bloomberg.
RBZ introduces gold-backed digital currency https://t.co/Fy4jNiLVzX
— Sunday Mail Zimbabwe (@SundayMailZim) April 23, 2023
RBZ Governor John Mangudya said the gold-backed digital currency is intended to complement the physical gold coin, the Mosi-oa-Tunya coin, which was launched last July to ease demand for the US dollar. The introduction of the digital currency is expected to provide an alternative means of storing value and trading, thereby stabilizing the country’s currency. According to Mangudya, Zimbabwe’s demand for foreign currency is a store of value, and to meet the demand for a domestic store of value, the number of physical gold coins will be increased, and digital tokens will be introduced so that gold coins can be purchased with small amounts of ZWL to “leave no one and no one behind”.
Zimbabwe has a history of hyperinflation, with the inflation rate rising sharply since around 2000. In 2008, the inflation rate was officially recorded at 355,000%, but it was much higher in reality. The government repeatedly issued new banknotes and changed the denomination of currency denominations.
In 2009, a 100 trillion Zimbabwe dollar banknote was issued, but the Zimbabwe dollar was effectively discontinued after the government introduced a multi-currency system. In 2019, the Zimbabwean dollar (RTGS dollar) was reintroduced as the sole legal tender, but the country has faced a shortage of paper due to hyperinflation, leading to the temporary circulation of US dollar banknotes since March 2020.
In countries with unstable economies and currencies, such as Zimbabwe, there is a growing demand for alternative assets such as gold and Bitcoin, which are viewed as stores of value. Argentina, for example, has also seen a trend towards a premium for Bitcoin due to capital controls on the US dollar introduced by the government.
In February 2021, Argentina’s consumer price index rose by 102.5% year-on-year, the first time inflation exceeded 100% since hyperinflation in 1991. During the crypto market sell-off in February, Bitcoin fell by 34% in dollar terms but rose by 20% in Argentinean pesos. Freelance workers in the country have also seen a significant increase in receiving salaries in cryptocurrencies.
Globally, the price of gold is on a steady upward trend due to growing financial instability, such as the successive bankruptcies of US banks and the acquisition of Credit Suisse, a major financial company, by UBS, a major investment bank. Bitcoin, which is also known as digital gold, rose sharply at the beginning of April but has since fallen due to increasing regulatory uncertainty in the US.
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