Zimbabwe has announced its plans to launch a gold-backed digital asset, which will be used as legal tender in the country. The move is aimed at stabilizing the nation’s economy and local currency, which has been facing continued depreciation against the US dollar. The Reserve Bank of Zimbabwe (RBZ) made the announcement on April 23, and according to local media reports, the new digital asset will allow those holding small amounts of Zimbabwean dollars to exchange their money for digital tokens. This move will help them store value and hedge against currency volatility.
The governor of RBZ, Dr. John Mangudya, stated that the current exchange rate volatility was caused by expectations of increased foreign currency supply, as the tobacco season has begun, and farmers receive payments in USD. The gold-backed digital asset is not the first time Zimbabwe has turned to gold to address currency volatility issues. Last year, gold coins were introduced to stabilize the local currency, which should officially trade at around $Z1,000 to the dollar but often changes hands for as much as $Z1,750 on the streets.
Zimbabwe abandoned its currency in 2009 and replaced it mainly with the US dollar due to extreme hyperinflation, which rendered the local currency worthless. In 2019, it reintroduced the Zimbabwe dollar to revive the local economy, but volatility ensued again. The country has not considered adopting Bitcoin as a legal tender but has mulled a CBDC (central bank digital currency).
Details on the technical aspects of the blockchain of the new digital currency were not provided. Gold is a relatively stable commodity when compared to currencies, and its prices have been increasing this year as another impending U.S. banking crisis has resulted in a flight to store of value assets. Since the beginning of the year, gold prices have increased by 8.25%. Furthermore, they hit an all-time high of $2,040 USD/oz on April 13, according to Gold Price. However, the yellow metal has retreated since and is currently around $1,980/oz. Comparatively, Bitcoin prices have surged this year, gaining around 70% since January 1.
The introduction of a gold-backed digital asset in Zimbabwe could provide an alternative solution for individuals looking to store value and protect against currency volatility. Gold is a traditional safe-haven asset that has been used as a store of value for centuries. By backing a digital asset with gold, Zimbabwe could create a currency that is more stable and less prone to volatility than its current fiat currency.
The move could also be seen as an effort to distance the country from the US dollar, which has been the primary currency used in Zimbabwe since 2009. By introducing a gold-backed digital asset, Zimbabwe could reduce its reliance on the US dollar and increase its economic independence.
However, there are concerns about the potential risks associated with a gold-backed digital asset. Gold prices can be volatile, and the value of the digital asset could fluctuate accordingly. Additionally, there are concerns about the security of digital assets and the potential for hacking and theft.
Despite these concerns, the introduction of a gold-backed digital asset in Zimbabwe could be a significant step towards creating a more stable and independent economy. It remains to be seen how the new digital asset will perform and whether it will be widely adopted by the people of Zimbabwe. However, with the continued depreciation of the local currency and the volatility of the global economy, a gold-backed digital asset could provide a valuable alternative for those looking to protect their wealth.
