The central bank of Zimbabwe said on Friday that the nation would introduce “tokens” that are backed by gold reserves and can be used to make payments to other persons and companies starting next month.
The action aims to support Zimbabwe’s struggling national currency, the Zimbabwe dollar, which is rapidly losing value given the country’s protracted economic problems in southern Africa.
Digital currencies supported by central banks have already been introduced in the Bahamas, Jamaica, and Nigeria, and numerous more nations, including China, are also testing the waters.
By seeking feedback from the public on the concept, the UK is moving one step closer to it. Both the US and the EU are thinking about taking similar action.
The new tokens in Zimbabwe “will be fully backed by physical gold held by the bank” and will be made available to the public on May 8, according to Governor of the Reserve Bank of Zimbabwe John Mangudya.
The tokens may be purchased by those who want to save money or use them for “person-to-person and person-to-business transactions and settlements,” according to Mangudya.
According to him, customers would be able to purchase the tokens from banks and conduct transactions using “e-gold wallets or e-gold cards” that the banks own.
After people’s savings were wiped out by hyperinflation in 2008, which, according to the International Monetary Fund, reached 5 billion percent, almost a world record, trust in Zimbabwe’s currency is at an all-time low.
Before the government was forced to temporarily abandon its own currency and allow the US dollar to be used as legal tender, the country’s hyperinflation led to the issuance of 100 trillion Zimbabwe dollar banknotes at one point.
The Zimbabwean currency was reinstated in 2019 and foreign currencies were outlawed for use in domestic transactions.
However, few listened, and the black market flourished while the value of the local currency rapidly decreased. The US dollar was reinstated once the administration gave up.
Many individuals currently choose to look for limited US dollars on the black market to store at home as reserves or to utilise in everyday transactions where US cash is still accepted due to recollections of that devastating inflation.
There is such a lack of confidence in the Zimbabwe dollar that many merchants and even some government organisations refuse to take it.
The exchange rate between the Zimbabwean dollar and the US dollar is little over 1,000 on the official market.
The quantity of local money available on the illegal but thriving street market, where dollars are easily accessible, is almost twice that amount.
With unusual strategies, Zimbabwe has previously attempted to halt the depreciation of its currency.
To stabilise the local currency, it introduced gold coins as legal tender in July 2022. But many people who find it difficult to purchase necessities like bread found them to be too expensive.
Mangudya told Zimbabwe’s The Sunday Mail newspaper this weekend that the launch of the digital currency would guarantee that “those with low amounts” of money may exchange them. “So that we leave no one and no place behind,” he said.
The local pricing of the tokens would be set by international gold prices established by the London Bullion Market Association, according to Mangudya.
According to a research released by the consulting firm PwC last year, more than 80% of the world’s central banks are either contemplating launching digital currencies or have already done so.