Zimbabwe’s Gold-backed CBDC poses threat to Financial Stability – IMF

The International Monetary Fund (IMF) has called on Zimbabwe’s financial authorities to attentively weigh the advantages of issuing a gold-backed digital currency against the possible risks to the economy.

Instead of rushing to issue gold tokens, authorities should consider liberalizing the country’s foreign exchange market, a global financier said.

The IMF’s statement comes just days after the Reserve Bank of Zimbabwe (RBZ) began issuing a gold-backed digital currency.

The gold-backed digital coin is an attempt by RBZ to curb local demand for the US dollar.

High demand for the dollar compared to limited supply on the official market has spurred the local currency’s depreciation from just above $1 on the parallel market.

From ZWL1000 to around $1 in early 2023: ZWL2000 is available until the end of April. Last year, the RBZ responded to the devaluation of its currency by raising key interest rates.

That same year, the central bank introduced physical gold coins, stating they would serve as an alternative store of value.

Nevertheless, after the RBZ began distributing gold-backed digital currencies, an IMF spokesperson warned of several risks such digital currencies pose.

A spokesperson, who asked not to be identified, said the move was prudent to ensure that the benefits of the move surpass the costs and potential risks, including macroeconomic and financial stability risks, legal and operational risks, governance risks, and the cost of foreign reserves. He said an evaluation needs to be done.

An IMF spokesperson reportedly called on Zimbabwe’s monetary authorities to stick to other traditional solutions, such as maintaining a tight monetary policy alongside exchange rate liberalization.

The IMF warning is the second time Bretton Woods institutions have reprimanded African countries for adopting an unconventional approach to currency management.

In 2022, the IMF warned of risks to financial stability after the Central African Republic introduced Bitcoin.

Similar warnings were issued after El Salvador became the first country to issue Bitcoin legal tender.