Zimbabwe plans to launch gold-backed digital currency to counter hyperinflation

The Reserve Bank of Zimbabwe (RBZ) is set to introduce a Central Bank Digital Currency (CBDC) — backed by the country’s gold reserves — to present Zimbabweans with a means to store value in the face of a depreciating local currency.

The details

• The introduction of the gold-backed CBDC is part of the RBZ’s move to stabilize its hyper-inflated local currency — the Zimbabwean Dollar (ZWL) — and provide an alternative store of value to Zimbabweans to hedge against the heavily dollarized economy, the Sunday Mail reported.
• The RBZ Governor, John Mangudya, said the digital tokens would be used so that people with low amounts of the local currency could also purchase units of gold.
• The digital gold tokens are expected to complement the Mosi-oa-Tunya gold coins, which the central bank released in July 2022 as it sought to rein in sky-high inflation rates.
• The Zimbabwean economy has now seen its annual inflation rate drop from 96.1% in July 2022 to 75.2% in April.

Telling quote

RBZ Governor John Mangudya, said:

“What we have noticed is that demand for foreign currency, apart from being driven by the need to import goods and services in Zimbabwe, is also viewed as a store of value … We are addressing the demand for a store of value by increasing the number of gold coins in the market so that we manage that demand.

“We shall soon be introducing digital tokens to ensure that those with low amounts of the local currency are able to purchase the gold units so that we leave no one and no place behind.”

Dive deeper

• It is unclear where the gold-backed digital currency project fits in RBZ’s overall CBDC strategy.
• Earlier this year, the bank said its purported CBDC roadmap was progressing steadily.
• Reports citing Mangudya had earlier valued the country’s gold reserves at 350 kilograms (currently valued at $22,967,153), with a further 14% increase in gold production targeted this year.
• A member of the bank’s Monetary Policy Committee, Persistence Gwanyanya, told Bloomberg that the country would need up to $100 million worth of gold in its reserves to peg the new CBDC to gold. He added that he expects the RBZ to bring a “respectable quantity” of gold to the table.
• It is worth noting that the Zimbabwean gold industry has recently been plagued with controversies revolving around smuggling and money laundering, with reports implicating several top government officials.
• International sanctions bordering on human rights issues slammed on the country have made it hard to legitimately exchange the abundant gold resource for the United States dollar (USD). Instead, the gold is smuggled out and sold to foreigners willing to launder several million dollars, the report alleged.
• The RBZ’s deputy governor, Innocent Matshe, cited by Bloomberg, said the bank was yet to finalize a date to roll out the gold-backed CBDC.

Key quote

• Matshe said:

“It is a concept which is pretty straightforward; we tokenize the gold, we have the gold. Every time we issue a coin, it is backed by real gold. We are still finalizing the details, but most countries are asking us how we came up with that plan.”

Key background

• Mariblock recenty reported about how the Zimbabwean economy is heavily dollarized. Data suggests that 76% of expenditure in the country is settled in USD.
• This results from the local currency losing its character as a store of value to hyperinflation, birthing a widespread demand for foreign currencies, particularly the U.S. dollar.