Zimbabwe Launches New Gold-Backed Digital Currency to Combat Re-Dollarization

In a bid to counter re-dollarization, which poses a threat to Zimbabwe’s already fragile economy, the country has unveiled a novel gold-backed digital currency.

These digital tokens, known as Zimbabwe Gold (ZiG), are primarily measured in milligrams and can be utilized for transactions by both individuals and businesses, according to Zimbabwe’s Central Bank. They are priced in U.S. dollars and the local currency and can be obtained through banks in ZiG. Bank customers can use their ZiG accounts for purchases through POS (point-of-sale) systems or online payments.

Zimbabwe introduced physical gold coins in July 2022 to facilitate peer-to-peer and peer-to-business transactions and serve as a store of value amidst the ongoing depreciation of the local currency against major currencies. Owners of physical gold coins have the option to convert or exchange them into digital tokens backed by gold via the banking system.

After a decade of dollarization that followed severe hyperinflation during Robert Mugabe’s rule, Zimbabwe reintroduced its own currency in 2019. Unfortunately, the Zimbabwean dollar swiftly depreciated against foreign currencies. At present, it is trading at a rate of ZWL$5,252 to $1, and on the black market, one U.S. dollar can fetch as much as ZWL$10,000.

To stabilize the local currency during the peak of the Covid-19 pandemic, the government implemented a multi-currency system. Today, it’s estimated that 80% of economic transactions are conducted using US dollars.

Gold stands as Zimbabwe’s leading export product, with the nation producing 35.2 metric tonnes last year. The government aims to increase mining sector revenue and revive the struggling economy by targeting 40 metric tonnes of gold production in 2023. However, watchdogs report that the majority of the country’s gold is sold through unauthorized channels. An Al Jazeera documentary exposed how members of Zimbabwe’s political elite smuggled gold to refineries in Dubai.

The Reserve Bank of Zimbabwe vehemently denied any connections to the smugglers, following allegations that these individuals exploited the Central Bank for money laundering through its gold purchasing operations.

Mounting inflation is adding pressure on President Emmerson Mnangagwa’s administration, as the nation recalls the economic turmoil during Robert Mugabe’s nearly four-decade rule. Hyperinflation had compelled Zimbabwe to abandon the Zimbabwe dollar in 2009, shifting to foreign currencies, primarily the U.S. dollar.