Zimbabwe Launches Gold-Backed Digital Currency
- Zimbabwe launched the gold-back digital currency to reduce its reliance on the US dollar.
- Zimbabwe has struggled with severe inflation since 2009.
- The gold-backed digital currency will be used to settle transactions.
Zimbabwe is launching local digital tokens as it plans to minimize its dependency on the US dollar. John P. Mangudya, the governor of the Reserve Bank of Zimbabwe, revealed that the country will begin issuing digital tokens backed by gold reserves on Monday, May 8. Locals will be able to conduct peer-to-peer payments and business transactions using these tokens.
The tokens have a minimum price of $10 for private buyers and $5,000 for businesses and other entities. The Reserve Bank noted that the gold-backed tokens would be offered for sale in both local currency and US dollars. However, the cost in local currency will be 20% more than the willing-buyer, willing-seller mid-rate.
The willing-buyer-willing-seller interbank Mid-rate refers to the rate at which banks are prepared to trade currencies with one another. It is regarded as the “midpoint” between the purchasing and selling rates established by current market factors like supply and demand. This conversion rate also serves as a standard for many financial transactions.
Zimbabwe moves to protect its local currency
The launch of digital tokens is Zimbabwe’s latest measure to protect its local currency, which, according to Bloomberg, has declined 37% versus the US dollar on the official market in 2023 alone. The Zimbabwean dollar, the official currency of Zimbabwe, is traded at 1,001 to the dollar, but is typically exchanged for 1,750 in Harare, the nation’s capital, according to a Bloomberg report.
According to Mangudya, “The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy, enhance the divisibility of the investment instruments, and widen their access and usage by the public.”
Like most Southern African countries, Zimbabwe has struggled with severe currency volatility and high inflation rates for more than a decade. Zimbabwe’s severe inflation in 2009 led it to switch to the US dollar. The country later reintroduced the use of the Zimbabwean dollar in 2019 as part of its plans to boost its faltering economy. However, Zimbabwe returned to the US dollar in 2022 to mitigate increasing prices.
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