Zimbabwe recently launched a gold-backed digital token to help its devaluing currency, but experts think it a futile project.
The International Monetary Fund (IMF), yesterday, cautioned the country against using digital tokens to address its macroeconomic problems.
On Tuesday, Zimbabwe’s central bank, the Reserve Bank of Zimbabwe (RBZ), introduced a gold-backed digital currency to be used as legal tender in the country.
For now, the digital currency can only be used for investment purposes, but the next phase of implementation will allow holders use the tokens for commercial transactions. With it, the country hopes to have more citizens buy into its gold industry and fight its currency devaluation and inflation, which jumped to 285% in 2022.
The IMF, however, believes that Zimbabwe’s solution may lie in conventional measures like the country tightening its monetary policy stance and removing restrictions on the exchange rate at which banks, authorised dealers and businesses transact.
“A careful assessment should be conducted to ensure the benefits from this measure outweigh the costs and potential risks including, for instance, macroeconomic and financial stability risks, legal and operational risks, governance risks, cost of forgone FX reserves,” an IMF spokesman said on Tuesday in an e-mailed response to questions.
Already, Zimbabwe will be putting a lot of gold on the line for the project. In April, a member of its monetary policy committee revealed that the country will need $100 million of gold to kick-start its proposed bullion-backed digital currency. Zimbabwe is targeting a 14% increase in gold production, which will bring production to 40 tonnes this year. It earned $377 million from gold production in Q1 2023, down from the $463 million it earned in Q1 2022.
