Zimbabwe has become the latest country to launch a digital currency backed by its central bank, as it aims to tackle its faltering national currency and hyperinflation woes. The new digital currency, which will be introduced in the form of “tokens,” will be backed by physical gold reserves held by the Reserve Bank of Zimbabwe. The move is expected to give Zimbabweans a safe and secure way to store their money, as well as facilitate person-to-person and person-to-business transactions.
According to the Reserve Bank of Zimbabwe Governor, John Mangudya, the digital tokens will go into circulation on May 8, with people being able to purchase them through banks and use them through “e-gold wallets or e-gold cards” held by banks. The pricing of the tokens will be determined by international gold prices as set by the London Bullion Market Association.
The introduction of the new digital currency is a significant step for Zimbabwe, which has struggled with hyperinflation that reached a staggering 5 billion per cent in 2008, wiping out the savings of many people in the country. In response, the government temporarily scrapped its currency and allowed the US dollar to be used as legal tender.
Since then, the Zimbabwean government has reintroduced a local currency and banned the use of foreign currencies for local transactions. However, the black market thrived, and the local currency rapidly devalued. The government eventually relented and unbanned the US dollar. Today, many people prefer to seek scarce US dollars on the illegal market to keep at home as savings or for daily transactions.
With the new digital currency, the Reserve Bank of Zimbabwe hopes to restore confidence in the Zimbabwean currency and ensure that “those with low amounts” of money can trade them. The bank received 135 applications valued at 14 billion Zimbabwe dollars ($12 million) to purchase the gold-backed digital tokens in its first sale, with a second auction planned for May 18.
Zimbabwe’s launch of a digital currency backed by physical gold reserves follows similar moves by other countries such as The Bahamas, Jamaica, and Nigeria. Furthermore, more than 80% of the world’s central banks are said to be considering issuing digital currencies or have already done so, according to a report by the consultancy PwC.
However, the move has been criticised by the International Monetary Fund, which urged the Zimbabwean government to liberalise its foreign-exchange rate instead of risking depleting its reserves. Despite this, Zimbabwe remains optimistic about the prospects of its new digital currency, which it hopes will provide a stable alternative to the volatile Zimbabwean dollar.
