Digital Gold – Not Popular with the IMF

Zimbabwe has released a gold-backed digital currency for peer-to-peer and peer-to-business transactions as well as to act as a store of value as the country’s currency continues to lose ground against major currencies. The Reserve Bank of Zimbabwe is inviting individual and corporate entities to use the digital currency that can be bought either in Zimbabwean dollars, foreign currency or in gold coins. The digital currency, the first ever by the country’s central bank, hit the market to lukewarm reception from economists and ordinary Zimbabweans. Zimbabwe joins other African states like Nigeria, Ghana and SA that have introduced digital currencies; several others have plans in the works. However, the International Monetary Fund (IMF) has called on Zimbabwean monetary authorities to consider carefully the benefits of issuing a gold-backed digital currency versus the potential risks to the economy.

Instead of rushing to issue the gold tokens, the IMF said authorities should instead consider liberalizing the country’s foreign exchange market. The gold-backed digital coins are an attempt by Zimbanwe to slow down local demand for U.S. dollars. High demand for the greenback versus its limited supply on the formal market has fuelled the local currency’s slide on the parallel market from just over US$1 : ZWL1000 at the start of 2023 to around US$1 : ZWL2000 by the end of April. In the past year, the Reserve Bank responded to the local currency’s depreciation by hiking the benchmark rate.