Zimbabwe Set to Introduce Gold-Backed Digital Currency to Stabilize Local Unit

• The gold-backed digital currency will provide a stable store of value for those with low amounts of currency.
• The move is expected to mop up excess liquidity and stabilize the local unit, which has been facing continuous depreciation against the US dollar. 
• Zimbabwe abandoned its currency in 2009 after an episode of hyperinflation and reintroduced it in 2019 to revive the economy.

Zimbabwe’s Central Bank Governor, John Mangudya, has announced that the country will soon introduce a gold-backed digital currency to stabilize the local unit, which has been continuously depreciating against the US dollar. The move is expected to enable small investors to exchange their money for digital tokens to hedge against currency volatility.

Background on Zimbabwe’s Currency Woes

According to Mangudya, the tokens will help ensure that those with low amounts of currency can buy the gold units “so that we leave no one and no place behind.” The move is also expected to mop up excess liquidity and stabilize the local unit, which currently trades at Z$1,000.4 against the dollar but readily changes hands at Z$1,750 on the streets of the capital.

Last year, Zimbabwe introduced gold coins in a bid to mop up excess liquidity and stabilize the local unit. However, the continuous depreciation of the local unit against the US dollar has prompted the government to introduce a gold-backed digital currency.

The move is expected to provide a stable store of value for those with low amounts of currency and hedge against currency volatility. It is also expected to boost the country’s economic growth by attracting more investors and foreign currency into the market.

Zimbabwe abandoned its currency in 2009 after an episode of hyperinflation rendered the local money worthless. The country then replaced its currency mainly with the US dollar. The Zimbabwe dollar was reintroduced in 2019 to revive the stagnating economy, but the government in June decided to make the greenback legal tender again to try and tame rampant price increases.

The introduction of a gold-backed digital currency is a step towards stabilizing the local unit and reviving the economy. The move is expected to attract more investors and foreign currency into the market, boost economic growth, and provide a stable store of value for small investors.