Zimbabwe: To boost its fiat currency, Zimbabwe will launch a gold-backed digital currency

Faced with Zimbabweans’ lack of confidence in the national currency, the government has resolved to introduce a gold-backed digital currency, which would allow citizens to store value and protect themselves against high exchange rate volatility.

Zimbabwe will soon launch a gold-backed digital currency in an attempt to stabilize its fiat currency, whose continued depreciation against the US dollar, is strangling the economy, local weekly The Sunday Mail reported on Sunday (April 23rd), citing Central Bank Governor John Mangudya (pictured).

“This will allow people holding small amounts of Zimbabwean dollars to exchange them for digital tokens, in order to store value and hedge against currency volatility,” Mangudya explained.

According to him, the current high volatility of the exchange rate is linked to expectations of an increase in the supply of foreign currency in the market, with the start of the tobacco auction season.

The Tobacco Industry and Marketing Council (TIMB) announced on March 8 that domestic tobacco production should increase by 8.5% in 2023, to 230 million kg, thanks to good weather conditions and increased sown areas.

Zimbabwe has been going through a severe economic crisis since the early 2000s, after former President Robert Mugabe’s land reform, which shattered a key sector of the country’s economy and forced it to halt the repayment of nearly $13 billion in debts to the World Bank, the African Development Bank (AfDB). the European Investment Bank (EIB) and the Paris Club countries.

The expropriation of white farmers then discouraged foreign investment and caused exports to fall sharply, prompting Mugabe to print money at full speed, causing a long episode of hyperinflation. It is in this context that the government was forced to abandon the Zimbabwean dollar in 2009 in favour of the US dollar. The Zimbabwean dollar was then reintroduced in 2019 in an attempt to revive the stagnant economy, but it has since continued to depreciate against the greenback.

Confidence in Zimbabwe’s currency has been low since people saw their economies wiped out by hyperinflation that reached 5 billion percent in 2008, according to the IMF. Most Zimbabweans prefer to obtain US dollars on the illegal market to keep them as savings.