- RBZ Governor John Mangudya revealed that as of July 21st, the bank had conducted 11 issuances of GBDT.
- The Governor noted that the bank received 590 applications to purchase tokens equivalent to 325.02Kg of gold.
- In 2022, as the international economic environment worsened, Zimbabwe turned to gold coins were introduced to tame runaway inflation.
Zimbabwe’s struggles with hyperinflation has since been making headlines for decades. In 2009, inflation was so devastating that the country issued a new Zimbabwean dollar (ZWL), shedding twelve zeros from the earlier currency (ZWD).
By November 2022, the annual consumer price inflation for a compressed basket of goods was at 107 per cent in the country and in June, inflation rose to 175.8 per cent following devaluations of the local currency.
According to the Reserve Bank of Zimbabwe (RBZ) mid-term monetary policy statement, inflation increased to 86.5 per cent and 175.8 per cent in May and June 2023. Similarly, monthly inflation, which was stable since the beginning of the year, rose in May to 15.7 per cent and peaked at 74.5 per cent in June 2023.
Although experiencing economic turbulence and hyperinflation Zimbabwe has been actively exploring innovative solutions to promote economic stability. According to an article published by African Business, Zimbabwe tentatively re-introduced the local currency in May 2016 in the form of bond notes meant to ease shortages of smaller notes and coins.
In 2019 the southern African nation officially re-introduced the Zimbabwean dollar, ending the use of a multi-currency regime including the US dollar and South African rand that had been adopted in 2009 to deal with a period of hyperinflation. In 2022, as the international economic environment worsened, gold coins were introduced to tame runaway inflation.
Also Read: Reserve Bank of Zimbabwe to introduce gold coins
Adopting gold-backed currency
In its latest bid to stabilise the long-volatile Zimbabwean dollar, the Reserve Bank has alighted on a novel solution to Zimbabwe’s currency woes by rolling out gold-backed digital tokens (GBDT) on May 12, 2023.
But while this new currency may reduce reliance on the US dollar and potentially lower exchange-rate volatility, the International Monetary Fund (IMF) cautioned Zimbabwe against adopting a gold-backed digital currency.
In fact, according to an article published by Bloomberg on May 9, 2023, the IMF urged authorities in the southern African nation to rather use conventional measures to address economic challenges.
Those measures include maintaining a tight monetary-policy stance and accelerating the liberalization of the foreign-currency market by removing restrictions on the exchange rate at which banks, authorized dealers, and businesses transact.
According to an article published by Coinbase on June 27, 2023, researchers are not convinced that a digital token will solve the country’s currency woes.
“It’s not the panacea to the challenges it’s wrestling,” Prosper Chitambara, senior research economist and policy advisor at Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ) said.
The reason experts are skeptical of the gold-backed digital token’s prowess is because it may not be enough to stop money supply growth, which is the real problem at hand. A digital token, without strong macroeconomic policies in place, cannot reduce the amount of money circulating in the economy, Chitambara added.
However, according to the central bank’s mid-term monetary policy statement, as of July 21, 2023, the Bank had conducted 11 issuances of GBDT, receiving a total of 590 applications to purchase tokens valued at ZW$50.50 billion and $7,794.87. The Bank, therefore, issued 325,024,524 milligrams equivalent to 325.02Kgs of gold.
Also Read: African governments postponing an inevitable crypto world
Gold-backed digital tokens alternative to holding US$
According to the central bank, the digital tokens held in either e-gold wallets or e-gold cards will be tradable and capable of facilitating Person-to-Person (P2P) and Person-to-Business (P2B) transactions and settlement. It therefore means that the gold-backed digital tokens would be used both as a means of payment and a store of value.
Presenting the monetary policy statement on August 9, 2023, RBZ Governor John Mangudya revealed that the Bank is at an advanced stage in the preparations for the eventual rolling out of GBDT for transactional purposes in Phase II of the project under the code or name ZiG, which stands for Zimbabwe Gold. He added that the transactional form of Zimbabwe’s digital gold tokens would complement US dollars in domestic transactions.
Gold-backed digital tokens and financial inclusion
While this concept offers several potential advantages, it also raises concerns about its impact on financial inclusion in Zimbabwe. While digital tokens are accessible to those with internet access, the digital divide is a significant barrier to financial inclusion in Zimbabwe.
According to the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) sector performance report for the second quarter of 2023, mobile penetration rate declined in Zimbabwe.
According to the Telecoms regulator, the total number of active mobile subscriptions declined by 0.7 per cent, to reach 13,955,937, from 14,051,251 recorded in the first quarter of 2023. Hence, the mobile penetration rate declined by 0.7 per cent, to reach 91.9 per cent, from 92.6 per cent recorded in the previous quarter.
In addition, the total number of active Internet and data subscriptions declined by 0.2 per cent to reach 9,902,500, from 9,920,847 recorded in the first quarter of 2023. The Internet penetration rate declined by 0.2 per cent to reach 65.2 per cent, from 65.4 per cent recorded in the previous quarter.
Rural and low-income individuals may lack access to the internet and digital devices, excluding them from participating in this financial ecosystem.
Lack of education
A comprehensive understanding of cryptocurrencies and digital tokens is crucial for their responsible use. The absence of widespread financial education can lead to uninformed decisions and potential risks for users.
Although there are initiatives to increase financial inclusion in Zimbabwe, the central bank in their monetary policy statement acknowledged the limited knowledge about CBDCs exhibited by respondents of a survey.
“A consumer survey was carried out during which 3,260 responses were received from the public. Notwithstanding the observed limited knowledge about CBDCs, 71.7 per cent of the respondents confirmed their willingness to use a CBDC if the Bank introduced it.
The regulatory environment for cryptocurrencies and digital tokens in Zimbabwe is evolving. Uncertainty and a lack of clear guidelines can also deter both users and investors, inhibiting the growth of the digital token market.
Also Read: Hit or miss? Zimbabwe’s gold-backed digital currency
