Zimbabwe Sets Price for Gold-Backed Digital Money to Entice Buyers

Jimmy Aki
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Starting next week, Zimbabwe’s central bank will launch a gold-backed digital currency available to investors, with a minimum token price of $10 for individuals and $5,000 for businesses and other institutions.

This new currency has the potential to stabilize the country’s native currency.

An Initiative to Support the Local Currency

The devaluation of the ZWD, the local fiat currency of Zimbabwe, has triggered a severe economic downturn with a continuous rise in the cost of goods and services.

With the surging unemployment rate set to exceed 70%, there are fears over a complete shutdown and continuous decline of Zimbabwe’s already battered economy.

To salvage the fast-depreciating currency, the Reserve Bank of Zimbabwe (RBZ) has announced the launch of its gold-backed digital asset to enable retail and institutional buyers as a new legal tender.

The new gold-backed crypto asset will be released to the public on May 8th and will serve as a means of stabilizing its volatile fiat.

RBZ iterated that the US dollars and ZWD will be accepted as payment for the tokens, with the latter being offered at a 20% premium above the willing-buyer, willing-seller interbank mid-rate.

Banks are prepared to trade the currencies with one another based on the willing-buyer and willing-seller interbank mid-rate, which is commonly considered the midpoint between the purchasing and selling rates determined by current market conditions like supply and demand.

This rate is frequently used as a benchmark for exchange rates and serves as a standard for many financial transactions quoted by banks and other financial institutions.

The country’s gold reserve, which the central bank will keep, will serve as the backing for the tokens, a type of digital currency.

The country’s gold reserve – which the central bank will keep – will act as the backing for the tokens, which are a sort of digital currency.

The issuance and use of the token have been divided into two parts by the central bank. In the first phase, tokens will be issued for investment purposes and sold through banks.

In the second phase, tokens will be stored on digital cards or wallets and usable for both person-to-person and person-to-business transactions, according to the notification.

The goal behind creating the unique digital asset is to enable citizens and several reputable corporations to protect their funds against hyperinflation of the local fiat currency.

Like stablecoins pegged to real-world commodities, securities, or currencies such as the US dollar and EUR to ensure value stability, Zimbabwe’s crypto token anchors the value of gold as a hedge against inflation.

The new digital currency will also surge to become an adopted means of payment, a new standard for remittance, international transactions, and many more.

As detailed in Investing.com financial data, the US dollar is now more closely equivalent to 1,000 Zim dollars as opposed to the 150 Zim dollars it was worth a year ago.

The US dollar and the Zim dollar are both accepted as legal tender in the country.

Norman Nyamandi, a Zimbabwean financial analyst, expresses his opinions on the new development. In a tweet, he noted that gold-backed digital coins would launch on Monday through any bank in Zimbabwe.

While redemption is important, he wonders if the forex will still be available six months from now or if the rules will have changed by then. He also stated that he is curious to see how this experiment turns out.

Is Adoption of Digital Currency the Way Forward?

For more than a decade, the southern African country has struggled with severe currency volatility and high inflation rates. In 2009, following a period of hyperinflation, the nation switched to the US dollar.

2019 saw the return of the Zimbabwean dollar to boost the faltering economy. However, to control price increases, the government switched back to using the US dollar in 2022.

As a result, Zimbabwe’s inflation rate in March 2023 was 87.6%, indicating a downtrend from 285% in 2022.

Worldwide adoption of digital currencies is rising, and many nations are considering launching their digital currencies.

The recent declaration demonstrates Zimbabwe’s readiness to adopt technology to boost its economy.

Implementing a digital currency backed by gold would help the country attract international investors while stabilizing its currency.

The government’s action was required as a proactive measure to strengthen the country’s economy, as the value of the Zimbabwean dollar relative to the US dollar has fallen this year.

Even though the country’s economic problems may not be resolved by this action right away, it is a step in the right direction.

Therefore, the market performance and viability of Zimbabwe’s gold-backed digital money will be intriguing.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.