Zimbabwe has recently launched a new gold-backed digital currency to achieve its plans to sustain its economy from the clutches of hyperinflation clubbed with a devaluing currency, the Zimbabwean dollar.
This digital currency can be obtained from the central bank in exchange for the Zimbabwean dollar or any other foreign currency. It will serve as a value store and a means of exchange for friendly and customer-to-business transactions.
This move granted Zimbabwe entry to the club consisting of other African nations like South Africa, Nigeria, and Ghana, who have launched digital currencies in their respective nations. As per sources, multiple other nations are actively working towards their plans to launch a digital currency.
Gold-backed digital currency- All You Need to Know
It is a digital currency backed by a fixed amount of gold. This relationship makes it a stable form of currency which isn’t the case in the present fiat currency system. The connection with gold gives it a trustworthy factor as its inherent value is directly proportional to the market value of gold. This would require ample gold reserves in the government coffers.
According to some state-owned media reports, Zimbabwe had 12,346 ounces (350 kgs) of gold reserves in April with a value estimation of $22.80 million. It was also said that they plan to build reserves equivalent to $100 million.
They will be an alternative to the Zimbabwean dollar and bond notes. The central bank of the country will roll it out, so it will be a legal tender and a store of value.
According to the central bank, the gold-backed currency can be mortgaged for taking loans. They will have a vested period of 180 days and come with the status of an asset.
The Need to Implement
The urgency to bring in gold-backed tenders is to control hyperinflation. Zimbabwe has been struggling with skyrocketing inflation for the past two decades.
It uses the Zimbabwean dollar and US Dollar for making transactions. The domestic currency is trading at one US Dollar for every $2000 on the black market.
The central bank wants to stabilise the country’s local units, and these gold-backed tenders are just one of the actions of a bigger plan. They aim to soak up the extra liquidity from the market because this is making the domestic currency prone to massive fluctuations against the US Dollar.
Such economic mayhem is not the result of some recent disaster, but the seeds were sown and watered for many years with policies leading to devaluation of the currency. The latest was the adoption of the US Dollar in 2009.
There have been multiple faulty reforms that brought about this situation. It all started way back in 1980 when Zimbabwe gained independence from Britain and renamed the Rhodesian dollar to the Zimbabwe dollar. Fast forward two decades, in 2003, they issued the first series of lower denomination bearer cheques to provide a breath to the cash crunch. In 2006, they issued a second round of higher denomination bearer cheques, which loaded the inflation hit the economy with upwards of $10 trillion notes in the market.
In 2009, hyperinflation clutched Zimbabwe had adopted a multi-currency system to deal with the issue. This would involve the use of major currencies like the US Dollar, Pound, Euro, and Rand. The same year the
The Zimbabwe dollar was struck off of its status as a legal tender.
After a decade of their struggle, they outlawed the dollar from domestic transactions in 2019. In 2022, Zimbabwe launched gold coins to stabilise the currency, and this year it rolled out a gold-backed digital currency.
Comments from Critics
Godfrey Kanyenze, an economist and founder of the Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ), praised the digital currency but did not believe in the central bank’s expectations that this would solve the currency issue.
He added that Zimbabwe is dealing with the lack of trust and confidence that was shaken by hyperinflation taking over, and its end in 2009 resulted in common people losing their money and savings.
The gold-backed currency is a psychopathic exercise in self-delusion. The local currency has failed due to the lack of trust in the leadership. This e-currency will suffer the same fate as the local dollar, said Tendai Biti, former Finance Minister.