Global Courant 2023-04-27 15:30:04
What if you could keep a piece of gold in your pocket without ever worrying about its safety? Well, in Zimbabwe that would soon be the norm.
The Zimbabwe Reserve Bank (RBZ) recently announced its plan to issue a gold-backed digital currency as legal tender. It allows people who have small amounts of Zimbabwean dollars to exchange them for digital tokens that can store value and provide protection against currency fluctuations.
The introduction of the digital gold tokens is part of the government’s interventions to deal with the country’s fluctuating currency and represents the first steps towards using the country’s gold reserves to support the national currency, the Zimbabwean dollar , to link.
According to the central bank, the The US dollar currently dominates and represents about 70% of domestic transactions. So the idea is to give people a local currency that they won’t be afraid to use.
Dr. John Mangudyagovernor of the RBZ, linked the volatility of the Zim dollar to “expectations of an increased supply of foreign currency in the market as the tobacco selling season began.”
It is remarkable, however, that Zimbabwe did not get here overnight. Confidence in the Zimbabwean dollar has been declining for years.
From the 1980s to 2009, Zimbabwe suffered hyperinflation due to poor government economic programs. In 2009, the government replaced the useless Zimbabwean dollar with $1USD worth Z$2,621,984,228,675,650,147,435,579,309,984,228 – with the US dollar, and inflation stopped.
In 2018, the government reintroduced the Zimbabwean dollar, which again quickly lost relevance as more citizens hoarded US dollars, believing the government would print more money to bolster its budget and render the currency worthless. Inflation rose to dizzying heights 255% in 2019doubled to 558% in 2020, with another 98% in 2021, and finally increased to 285% in 2022.
After the 2020 COVID-19 pandemic, the government allowed citizens with excess funds to use their foreign currency to make domestic purchases, leading to the dual currency system. During this period, the Zimbabwean dollar failed to gain stability.
Then came July 2022, when the RBZ was introduced Mosi-oa-Tunya gold coins to halt the devaluation of the Zimbabwean dollar and reduce the demand for US dollars. Now the bank plans to introduce gold-backed digital tokens that will act as the digital representation of the physical gold coins.
The RBZ hopes that the new digital currency will complement the Mosi-oa-Tunya coins and encourage more citizens to buy into the gold industry. The country is targeting a 14% increase in gold production to $40 trillion this year after making $377 million in gold production in the first quarter compared to $463 million a year ago, according to data from Fidelity Gold Refineries, the country’s only refinery. the country.
But there is a catch. Zimbabwe needs about $100 million in gold to jump-start this strategy. According to Persistence Gwanyanya, a member of the central bank’s monetary policy committee, “Any amount around or under $100 million will be able to tackle our challenge in a big way. We expect the central bank to bring in a respectable amount that can stabilize the Zimbabwean dollar and stimulate demand.”
Zimbabwe has built up gold reserves and ransomed precious metals since last year, when it introduced a policy forcing miners to pay part of their royalties in cash and metal. Now it will have to build this dream on what it has hidden.
