Digital Currency Backed By Gold To Be Introduced By Zimbabwe’s Central Bank

Local media The Sunday Mail reported that the Reserve Bank of Zimbabwe will shortly introduce a digital currency backed by gold to prevent its currency’s continued depreciation against the US dollar.

The country’s gold reserves, which will be kept by the central bank, will serve as the backing for the tokens, which will function as an electronic form of currency for domestic transactions in South Africa.

In order to help consumers protect themselves against the volatility of the local currency, the central bank wants anyone who possess Zimbabwean dollars to be able to trade those dollars for the gold-backed digital currency.

Digital Currency Plan Requires $100-M Of Gold

As the digital gold tokens represent gold held in physical form by the issuing authority, the RBZ would progress toward pegging the Zimbabwe dollar with gold reserves.

The “Zim” is a colloquial designation for the Zimbabwean dollar, which is the country’s official currency. The term Zim is derived from the first syllable of the country’s name, “Zimba,” and locals commonly use it to refer to their national currency.

Bloomberg quoted Persistence Gwanyanya, a member of the central bank’s monetary policy committee, as saying on Monday via telephone from the country’s capital Harare:

“Any amount around or less than $100 million will be able to deal with our challenge in a big way […] we expect the central bank to bring a respectable quantity that can stabilize the Zimbabwe dollar and boost demand.”

The Reserve Bank of Zimbabwe tower in the center. Image: Baynham Goredema/Flickr

In an effort to strengthen its faltering dollar, Zimbabwe is proposing to launch a digital currency backed by bullion and requires $100 million in gold to do it.

John Mangudya, governor of the RBZ, was quoted as saying:

“We are addressing this demand for store of value by increasing the number of gold coins in the market so that we manage that demand.”

The official exchange rate for the Zimbabwe dollar (ZWL) is currently 1,001 ZWL, while the street rate in Harare’s capital is typically 1,750 ZWL.

Zimbabwe’s Complicated Currency History

Zimbabwe has been battling a slide in its currency in a country where the US dollar is the preferred currency.

Since the introduction of a policy last year requiring miners to pay a portion of their royalties in cash and metal, the central bank has been accumulating gold reserves and acquiring other precious minerals. It expects the cache to aid its most recent scheme.

The Zim was reintroduced in 2019 in an endeavor to revitalize the struggling economy. In an effort to curtail rising prices in the country, the government reinstituted the U.S. dollar last year.

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RBZ introduced a 22-karat gold Mosi-oa-Tunya coin in July 2014 to reduce demand for the US dollar. A gold-based digital currency is intended to supplement physical gold coins by providing an alternative method of value storage and exchange.

In August of 2017, the RBZ announced its intention to establish a central bank digital currency. Other African nations have also investigated a CBDC; in October 2021, Nigeria launched its eNaira.

-Featured image from Zimbabwe Situation