John P. Mangudya, the governor of the Reserve Bank of Zimbabwe, announced on April 28 that starting Monday, Zimbabwe will launch new digital tokens. These tokens are backed by gold reserves and can be used for peer-to-peer payments as well as transactions with businesses. The aim of this move is to provide an alternative to the US dollar and stabilize the country’s weakening currency.
While the official exchange rate is approximately 1,000 Zimbabwean dollars for $1, in the illegal market, the rate is almost double that amount. The local pricing of the tokens will be determined by international gold prices set by the London Bullion Market Association. According to a press release by the Central Bank on May 4th, individuals can purchase digital tokens with a minimum spend of $10, while financial institutions, corporations, and other entities must spend a minimum of $5,000.
The Issuance And Usage Of The Gold-Backed Digital Tokens
The governor of the Reserve Bank of Zimbabwe stated in a press release that the launch of the gold-backed digital tokens aims to increase the availability of value-preserving instruments in the economy and improve their divisibility, accessibility, and usage by the public. Banks will offer the tokens for purchase and transactions can be conducted using “e-gold wallets or e-gold cards” provided by the banks. Additionally, the issuance and utilization of the digital tokens will occur in two phases, as outlined below:
In Phase 1, the tokens will be issued for investment purposes with a 180-day vesting period and can be redeemed in the same way as physical gold coins. They will be available for sale through banks in both foreign and Zimbabwean currencies, and banks will create specific accounts (e-gold wallets or e-gold cards) for holding the tokens. Holders of physical gold coins can exchange or convert them into gold-backed digital tokens through the banking system if they so choose.
In Phase 2, the gold-backed digital tokens held in e-gold wallets or e-gold cards will be tradable and will facilitate person-to-person (P2P) and person-to-business (P2B) transactions and settlements. This means that the tokens will function as both a means of payment and a store of value.
What This Means For Zimbabwe
Over time, an increasing number of countries have been launching digital tokens to strengthen their local currencies. The Bahamas, Nigeria, and Jamaica are among the nations that have introduced digital currencies backed by their central banks. Even world powers such as the UK, China, and the US are actively developing their digital tokens.
In 2008, Zimbabwe experienced a significant decline in trust in its currency when hyperinflation wiped out the savings of a large percentage of the population, reaching 5 billion percent according to the International Monetary Fund, which was nearly a world record. Despite launching gold coins as legal tender in July 2022 to stabilize the local currency, the economy and currency of the country never fully recovered, and people struggled to purchase everyday items like bread.
However, Governor Mangudya explained to QZ that the introduction of the gold-backed digital currency will enable those with low amounts of money to trade it so that “we leave no one and no place behind.” The citizens of Zimbabwe are hopeful that the digital currency will benefit their economy and currency.
Let us know what you think about Zimbabwe’s new gold-backed digital currency.