Zimbabwe is experimenting with a gold-backed digital currency
Zimbabwe has taken a daring approach to revive its struggling economy by initiating trials for a digital currency backed by gold. This courageous move comes as the country battles with high inflation rates, which have led to the devaluation of its local currency, putting its citizens in a difficult position.
A digital lifeline in times of economic hardship
The Reserve Bank of Zimbabwe (RBZ) is striving to transform Zimbabwe's struggling financial ecosystem by introducing a digital currency supported by gold. This innovative form of money, as explained by Nebson Mupunga, the RBZ's director of economic research and policy implementation, aims to be accepted as legal tender for both person-to-person and business transactions. The primary objective of this endeavour is to preserve value and counteract the rapid depreciation of the exchange rate. If successful, Zimbabweans will soon could carry out transactions using a stable digital token that is backed by the universally recognized value of gold. This digital token has the potential to address the issue of exchange rate volatility, which has contributed to Zimbabwe's soaring inflation rate. In June 2023, inflation rose to 175.8%, up from 86.5% in May, leading to a surge in prices and a decline in the value and purchasing power of money.
Is it a solution worth pursuing or a waste of time?
Although there are many optimistic views on this technological advancement, not everyone is convinced of its potential. The International Monetary Fund has expressed concerns about the possibility of Zimbabwe depleting its gold reserves.
There are also concerns about the negative impact of increasing inflation rates. Companies often pass these costs onto consumers, which in turn affects overall demand as many Zimbabweans struggle with the rising prices of goods and services.
The value of the Zimbabwean dollar has significantly dropped, losing more than 50% of its value against the US dollar in just one year. As a result, a large portion of transactions in Zimbabwe now take place in foreign currencies, indicating that the public prefers stability rather than relying on the unpredictable local currency.
The introduction of the gold digital token aims to provide an alternative for citizens who want a more secure way to store value. According to Mupunga, the token serves two purposes: offering a stable means of storing value and facilitating transactions.
In addition to the gold-backed digital currency, Zimbabwe has implemented other measures to stabilize its economy, such as removing import licenses and allowing duty-free imports. The Reserve Bank of Zimbabwe has also raised interest rates from 140% to 150%.
In the larger picture, the introduction of the gold digital token has the potential to completely transform Zimbabwe's economy. However, it is uncertain whether this innovative effort to stabilize finances will truly solve the country's economic problems or turn out to be a deceptive solution.
The global community eagerly awaits the outcome of this pioneering initiative, holding their breath in anticipation.