ZIMBABWE has sold $40 million worth of its gold-backed digital currency, despite warnings from the IMF, according to the country’s central bank. The Reserve Bank of Zimbabwe (RBZ) plans to conduct a second sale of the tokens, defying the IMF’s cautionary advice.
In April 2023, RBZ introduced the digital currency as part of its efforts to combat hyperinflation in the country. Zimbabweans have the option to exchange their local dollars for the tokens, providing a means to preserve value and protect against exchange rate volatility, explained RBZ Governor John Mangudya.
Local reports indicate that the central bank has sold tokens equivalent to Z$14bn (about $40 million). In a statement, Governor Mangudya revealed that participating banks received 135 applications for token purchases, with 132 applications in the local currency and three in US dollars. The tokens are backed by 139.6 kilograms of gold held by the central bank.
‘The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public,’ stated Governor Mangudya.
During the first phase, the tokens come with a minimum vesting period of 180 days. In the second phase, RBZ plans to enable token holders to use them for payments at merchant stores and for person-to-person transfers.
Zimbabwe’s decision to sell the gold-backed digital tokens goes against the advice of the IMF. Earlier this month, an IMF spokesperson warned the country that the tokens were a temporary solution that did not address the underlying issues.
‘A careful assessment should be conducted to ensure the benefits from this measure outweigh the costs and potential risks, including macroeconomic and financial stability risks, legal and operational risks, governance risks, and the cost of forgone foreign exchange reserves,’ the spokesperson cautioned.
While Zimbabwe defies the IMF’s warnings, other countries like Argentina have complied with the organisation’s demands. Argentina is currently cracking down on digital assets, fulfilling one of the conditions for a $45bn loan.
Zimbabwe has grappled with currency challenges for over a decade. In 2009, the country adopted the US dollar after its local currency became practically worthless due to hyperinflation. However, in 2019, Zimbabwe reinstated the Zimbabwean dollar, which has since struggled to control inflation. This year alone, the local currency has lost 40 percent of its value against the US dollar, with official platforms trading at a rate of 1,000 while street rates go as high as 2,000.
Despite the Zimbabwean dollar being the legal tender, most businesses continue to demand payments in US dollars. With limited access to US dollars or facing significant premiums, Zimbabwean businesses have resorted to creative measures to survive. Some businesses offer small items as change, such as cheese, pens, juice boxes, and food items.
According to the Wall Street Journal, certain businesses have even resorted to printing their own ‘money.’ These establishments issue scraps of paper representing the change owed, which customers can use for future purchases at their respective stores. However, challenges persist, as these scraps are non-fungible, usable only at one specific outlet, and prone to wear and tear.