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Zimbabwe to Roll Out Gold-Backed Digital Currency to Curb Inflation

17:37, 23 April 2023
© AFP 2024
Maxim Grishenkin
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This is not the first time the government has experimented with currencies: in 2019 it returned the national currency after a decade of using US dollars, introduced amid hyperinflation and devaluation of the domestic currency.
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The Reserve Bank of Zimbabwe (RBZ) is planning to introduce a digital currency backed by gold to stabilize the local currency after its continued slide against the dollar, national media has reported citing central bank Governor John Mangudya.
As envisioned by the monetary authorities, digital gold tokens, a form of digital money backed by gold held in the RBZ, would allow those holding small amounts of Zimbabwean dollars to exchange their money for tokens to store value and hedge against exchange rate volatility.

"We shall also soon be introducing digital gold tokens to ensure that those with low amounts of local currency are able to purchase the gold units so that we leave no one and no place behind," the central bank governor told the media.

According to Mangudya, the current volatility of the exchange rate was caused by the expectations of increased supply of foreign currency in the market when the tobacco auction season began in March.

"The movements in the parallel market rate are mainly because of the expectations of increased foreign currency supply in the market when the tobacco marketing season opened,” the governor said. "However, the supply of foreign currency over the past three weeks has been lower than expected. That expectation raised the rates because people thought there will be more money in the market."

Mangudya, however, expects the foreign exchange rate in the parallel market to begin to stabilize when tobacco farmers begin receiving their portion of the payments in US dollars this week.
"With the start of the tobacco marketing season, most of the funds have been going towards servicing tobacco contractors’ obligations. Now, the money will start flowing into accounts of the growers themselves end of this month; that is when most of them will start receiving their US dollar portions," he said.
The bank also reportedly plans to increase the number of gold coins on the market, offering an alternative way of investing to preserve the value and transactions.

"What we have noticed is that demand for foreign currency is also viewed as a store of value," added Mangudya. "It means anyone with local currency would want to convert it to foreign currency. 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."

Gold coins named "Mosi-oa-Tunya" were launched and distributed to commercial banks last July to curb the country's rising inflation rate, which climbed to 190% in July. The name of the coin means "The Smoke Which Thunders", which refers to Victoria Falls in native Tonga language.
On Friday, Zimbabwe's Finance Minister Mthuli Ncube said that the country's economy could grow 6% this year, better than a previous forecast for 3.8% growth, thanks to a strong performance by agriculture and easing power shortages.
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