- The Reserve Bank of Zimbabwe (RBZ) recently announced a new digital currency, the Gold-backed dollar (GBD), designed to address the country’s foreign currency shortages and combat inflation.
- A reserve of gold will back the GBD, and it is expected to bring more stability to Zimbabwe’s financial system and improve investor confidence
- Zimbabwe’s dramatic history includes holding modern inflation records of over 250,000,000% in July 2008
The Reserve Bank of Zimbabwe (RBZ) recently announced a new digital currency, the Gold-backed dollar (GBD), designed to address the country’s foreign currency shortages and combat inflation. Zimbabwe’s dramatic history includes holding modern inflation records of over 250,000,000% in July 2008. A reserve of gold will back the GBD, and it is expected to bring more stability to Zimbabwe’s financial system and improve investor confidence. The Zimbabwean dollar has faced problems and continues to lose value.
Zimbabwe has faced a significant economic crisis over the past two decades, with hyperinflation leading to the collapse of the local currency in 2009. At this point, the local currency situation was untenable. One US dollar was worth ZWD 35 000 000 000 000 (35 quadrillion Zimbabwean Dollars).
The country has relied on foreign currencies like the US dollar to conduct daily transactions. Still, a shortage of foreign currency led to long queues outside banks and cash shortages. The local currency was reintroduced in 2014 and given full currency status in 2019. Since then, this new Zimbabwean Dollar or RTGS dollar, has plummeted from an official value of US$1 to USD$ 0.001 (one-tenth of a cent). However, Zimbabwe has a parallel currency market, where the Zimbabwean dollar is currently valued at US$0.0005 (one-twentieth of a cent).
Enter Zimbabwes Gold Backed Digital Dollar (GBD)
The GBD plans to solve these challenges by issuing a new digital currency that backs tangible assets, specifically gold.
This implies that gold will connect the value of the gold-backed dollar, which people generally consider a reliable and stable store of value. Although no one has revealed any details, this backing is theoretically possible. Interestingly, when Zimbabwe reintroduced its dollar in 2014, it was backed by US dollars, but that did not help.
The gold-backed dollar will equal Zimbabwe’s official currency, the RTGS dollar. Unlike the RTGS dollar, which has significantly decreased in value over the past few years, the gold-backed dollar is expected to maintain its worth because of gold’s backing. The definition of gold backing is unclear.
The Reserve Bank of Zimbabwe states that a blockchain platform, a digital ledger ensuring secure and transparent transactions, will trade the GBD. This technology is expected to increase transparency and security in transactions, which is critical in a country where corruption and fraud are widespread.
The RBZ claims it will work with local banks and financial institutions to ensure Zimbabweans widely accept and access the gold-backed dollar. This requires educating and training people on using the GBD and creating infrastructure to support its use.
Will a digital currency save Zimbabwe
Many Zimbabweans are hopeful that introducing the gold-backed dollar will bring much-needed stability to the country’s economy. However, many more Zimbabweans are sceptical, pointing out that Zimbabwe has a long history of economic mismanagement and corruption.
The RBZ governor, John Mangudya, has expressed confidence in the GBD, stating that it is an innovative solution to Zimbabwe’s economic challenges. He believes that the new currency will help to restore confidence in the country’s financial system and attract foreign investment. The country has struggled with something, save for a brief period between 2009 and 2013 when the country abandoned all local currency and used foreign currency exclusively. However, Zimbabwe has an interesting history with digital currency.
Overall, Zimbabwe’s history with digital currency has been characterized by a mix of caution and experimentation. While the government has expressed concerns about the potential risks associated with digital currencies, the country’s economic challenges have made them an appealing alternative to traditional currencies.
Zimbabwe’s history with digital currency
In 2016, the Reserve Bank of Zimbabwe (RBZ) issued a circular indicating that it studied digital currencies and explored their potential benefits for the country. The RBZ also warned citizens against using digital currencies, citing concerns about fraud, money laundering, and terrorism financing.
Despite this warning, the use of digital currencies continued to grow in Zimbabwe, mainly to make international payments and remittances. In 2018, the RBZ banned all financial institutions in the country from dealing with or facilitating cryptocurrency transactions, citing the lack of regulation and the potential for financial instability.
However, the ban did not completely halt using digital currencies in Zimbabwe. Some individuals and businesses continued to use digital currencies for peer-to-peer transactions and to store value. Zimbabwe has an estimated cryptocurrency adoption rate of around 4.5%.
In 2021, the RBZ announced that it was developing its digital currency, the Zimbabwean Dollar Digital (ZDD). We expected the ZDD to tie to the country’s fiat currency, the Zimbabwean dollar, and its reserves to back it up. Since then, they’ve made little tangible progress. They recently launched an online stakeholder survey.
Despite banning cryptocurrencies, the Reserve Bank of Zimbabwe created a regulatory Sandbox for digital products. This would allow developers to test their projects while seeking regulatory approval in the country.
More questions than answers
To say Zimbabwe’s currency has battled is an understatement. The Gold-backed digital currency’s next move has raised even more questions. In 2022 Zimbabwe introduced gold coins as a store of value. The idea was to help defend the local currency value. By offering an alternative destination for local money rather than buying foreign currency. This demand for foreign currency, coupled with disdain for the Zimbabwean dollar, continued to erode the value of the dollar.
The Reserve Bank of Zimbabwe has chosen to focus on another currency. Instead of using this effort to fix the one they have. This looks a lot like choosing to bury their heads in the sand. The gold backing sounds good on paper, but questions have been asked about the choice to back a new currency with gold rather than the existing one. Backing a currency with gold does not require something as complex as blockchain technology. So why are they complicating a simple process? What will become of the current ailing currency that Zimbabwe has?
Only time will tell whether the GBD will successfully achieve its intended goals. It represents a bold step by the RBZ towards addressing the country’s economic challenges. Only the most jaded believers will look at this move without the scepticism it deserves. Perhaps we can determine how well this idea will work when more details emerge. Until then, we wait with bated breath.