The Reserve Bank of Zimbabwe (RBZ) has initiated a dry-run to assess the viability of introducing a digital currency backed by gold, a local report says.
The aim of this initiative is to establish a form of legal tender that can be used for peer-to-peer and peer-to-business transactions, with the intention of preserving value in the country’s economy.
In May 2023, the bank unveiled the gold coin indicating that the first phase will see the gold-backed digital coins issued for investment purposes with a vesting period of 180 days and redeemable in the same way as the existing physical gold coins.
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Zimbabwe will soon introduce a gold-backed digital currency tokens meant to stabilise the local unit from its continued depreciation against the dollar
The digital tokens will help ensure that those with low amounts of currency can buy the gold units ‘so that we leave… pic.twitter.com/2RPftt9ogw
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The second phase would see the gold-backed digital tokens held in either e-gold wallets or e-gold cards that will be tradable and capable of facilitating person-to-person (P2P) and person-to- business (P2B) transactions and settlements.
It appears tests are taking place pending the launch of this second phase.
According to Nebson Mupunga, the Director of Economic Research and Policy Implementation at the Reserve Bank of Zimbabwe, the central bank is on the verge of launching the digital dollar for utilization in market transactions. Thus Zimbabweans will soon have the opportunity to conduct transactions using the digital dollar backed by gold.
This measure is expected to help stabilize the rapidly declining exchange rate in the country.
“…We are at an advanced stage; we are at the testing stage now. Soon, we will allow the gold digital token to be used for transactions purposes just like someone buys foreign currency from the parallel market. But at the same time, we can transact with. So, the token is coming and will satisfy the same function,” said Mupunga.
This recent development occurs against the backdrop of severe inflation in Zimbabwe, the report continued. Exchange rate instability has been a major contributing factor to the significant rise in annual inflation, which:
- Surged to 175.8% in June 2023 from 86.5% in May 2023
- Additionally, monthly inflation skyrocketed to 74.5% in June 2023 from 15.7% in May 2023
At the same time, the Zimbabwean dollar has encountered significant challenges having depreciated by over 50% against the United States dollar since the beginning of 2023. As a result, a considerable portion of domestic transactions in Zimbabwe is now conducted using foreign currencies indicating a strong preference for stability in light of the volatile Zimbabwean dollar.
“Many people are converting local currency to foreign currency in a bid to store value. Then we said, let’s come up with the product that can mirror the same characteristics instead of people going to buy foreign currency on the parallel market,” Mupunga said.
“We then came up with a product which has the same characteristics of foreign value in the form of gold digital token where holders of local currency liquidity can buy the token and that token will be able to preserve value.
“But over and above that, we said let’s go to the next stage where we can use the token for transaction purposes. We are now at the testing stage where we then allow the token to be used for transaction purposes.”
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