John Mangudya, RBZ Gov

Zimbabwe to Issue Gold-Backed Digital Currency

The Reserve Bank of Zimbabwe has announced a plan to introduce a gold-backed digital currency to serve as a legal tender in the country. The move is a government initiative to stabilize the local currency from its depreciation against the United States dollar.

According to a report from local media Sunday Mail, the move will allow small amounts of Zimbabwe dollars to be exchanged for the digital gold token, enabling more Zimbabweans to hedge against the currency volatility. Central bank governor John Mangudya said the plan intends to “leave no one and no place behind.”

Zimbabwe’s currency trades nearly Z$1,001 against $1 but is normally exchanged for Z$1,750 on the streets of Harare, the country’s capital, according to Bloomberg. Zimbabwe’s annual consumer price inflation reached a one-year low in March at 87.6%, from 92% in February.

Mangudya hints that the exchange rate in the parallel market is expected to stabilize after tobacco farmers receive their United States dollar payments in the coming weeks.

The authority said the current exchange rate volatility was caused by “expectations of increased foreign currency supply” on the market due to the tobacco season.

The monetary dysfunction in Zimbabwe led to a lack of small changes in the country, according to a Wall Street Journal report from March. Businesses have started printing their “own money”, often on handwritten scraps of paper, so users can pay for future purchases.

Zimbabwe has been fighting against currency volatility and inflation for over a decade. In 2009, the country adopted the US dollar as its currency after an episode of hyperinflation. In 2019, the Zimbabwe dollar was reintroduced in an effort to revive the country’s struggling economy. Last year, the government decided to use the US dollar again in a bid to curb surging prices in the country.

Crypto adoption has grown in many African countries as a result of the economic challenges. According to Chainalysis, the Middle East and North Africa region is the fastest growing region for crypto adoption in the world thanks to cross-border remittances, with over $566 billion in crypto transactions between July 2021 and June 2022, up 48% from the previous year.

Gold-Backed Digital Currency – Hedge Against Inflation

Zimbabwe’s central bank will launch a gold-backed digital currency, the national newspaper, The Sunday Mail reports. And although technically the tokens could be considered a form of central bank digital currency (CBDC), they are better thought of as digital gold.

The new gold-backed tokens are being issued in a country that has a troubling history with inflation.

Ever since Zimbabwe suffered from a major crisis of hyperinflation in 2008, the country has struggled to bring rates down. In the past year, annual inflation has rarely dipped below 90%. And the Zimbabwe dollar has fallen sharply against major currencies.

Facing such an inflationary environment, residents in the country will be able to exchange Zimbabwe dollars for digital gold as a way to hedge against volatile exchange rates. The gold itself will remain in the custody of the issuing authority.

RBZ Governor Dr. Mangudya told the paper that the central bank is also considering issuing more physical gold coins. In a bid to tame inflation by using its gold reserves to draw Zimbabwe dollars out of circulation, the central bank will issue the precious metal in both physical and tokenized form.

“What we have noticed is that demand for foreign currency, apart from being driven by the need to import goods and services in Zimbabwe, is also viewed as a store of value,” he said.

Of course, there have been many previous attempts to tokenize physical gold assets over the years.

For inspiration, the RBZ can look to existing cryptocurrencies like Gold Coin (GLC) and Meld Gold by Algorand (MCAU). Minted by well-known players in the crypto space, these tokens offer an alternative way for people to invest in gold. And without having to physically hold it themselves.

In instances of gold-backed currency, blockchain technology providers often partner with specialists in precious metals trading and safekeeping.

For example, the precious metals refinery SEMPSA JP has partnered with Aurus. Through the collaboration, the company offers gold- and silver-backed tokens to bullion dealers.

As well as delegating responsibility for storage to professionals, tokenized gold also allows people to purchase smaller weights easily. Because no physical metal has to be processed when digital assets exchange hands, gold-backed crypto can lower barriers to entry to the investment class. Nigerian Banks Give Fresh Update on Naira Swap

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