Gold-backed digital currency to be introduced by the Reserve Bank of Zimbabwe is supposed to stabilize the highly volatile Zimbabwean dollar
The Reserve Bank of Zimbabwe is set to introduce a gold-backed digital currency to serve as legal tender in the country where annual consumer price inflation reached a one-year low in March at 87.6%.
According to a report from local media outlet The Sunday Mail, the new digital payment means will allow Zimbabweans to hedge against currency volatility.
Currently, the local currency suffers from continued depreciation against the U.S. dollar. Zimbabwean dollar officially trades at 1,001 against $1. However, if one visits local exchange points in the country’s capital, Harare, $1 will be typically exchanged for 1,750 ZWL.
The innovation will enable local citizens to exchange small amounts of Zimbabwean dollars for the digital gold token, paving the way for more stability.
On one hand, Reserve Bank of Zimbabwe Governor John Mangudya says the current parallel market volatility is triggered by “expectations of increased foreign currency supply” linked to the tobacco season. The country’s tobacco production has increased this year due to good rains and more farmers involved, bringing more profits in foreign currency. Therefore, the exchange rates will partly normalize as soon as tobacco farmers receive their U.S. dollar payments in the coming weeks.
However, the end of tobacco season alone can’t be a solution to such a long-standing inflation issue Zimbabwe has at hand.
The country has been dealing with the volatility of the national currency for over a decade now. In 2009, Zimbabwe even adopted the U.S. dollar as its currency to fight hyperinflation. However, ten years later, the Zimbabwean dollar was reintroduced, as the authorities tried to revive the country’s struggling economy. Over these challenging years, Zimbabwe has experimented with a multi-currency approach as well.
Nevertheless, in 2022, Zimbabwe hit the list of top 10 countries with record inflation levels. As reported by Wall Street Journal, the dire situation of the monetary system in Zimbabwe led to businesses printing their own money analogues often on handwritten pieces of paper, to enable customers to pay for future purchases.
Thus, Zimbabwe is going to become another emerging economy adopting a crypto solution in an effort to save its financial system. At present, El Salvador keeps pushing its Bitcoin agenda, while Nigeria experiments with e-naira and wants to legalize crypto.