Zimbabwe’s Gold-Backed Digital Currency
Recently, Zimbabwe launched a gold-backed digital currency, marking another attempt to stabilize and strengthen its currency. This innovative move aims to address the ongoing challenges faced by the country’s financial system.
The Concept of a Gold-Backed Digital Currency
A gold-backed digital currency is a form of currency that is tied to the market value of gold. In this case, Zimbabwe’s digital currency is supported by a certain amount of gold, which helps maintain its value stability. It functions as an accepted form of payment and has the potential to retain its worth over time, operating in conjunction with the Zimbabwean dollar and bond notes as a means of preserving value. This currency can be bought and sold using Zimbabwean dollars or other foreign currencies.
Reasons for Introducing the Digital Currency
Zimbabwe introduced the gold-backed digital currency with the primary goal of stabilizing and strengthening its currency. The country has been grappling with significant economic challenges, including hyperinflation and a weakening Zimbabwean dollar. By launching this digital currency, the government aims to address the issue of excess liquidity in the market and restore confidence in the local currency.
Current Gold Reserves in Zimbabwe
As of now, Zimbabwe holds approximately 350 kg (12,346 ounces) of gold reserves, with a value of $22.80 million based on current prices. The government plans to increase these reserves to around $100 million, thereby further backing the digital currency with tangible assets.
Exchange Rate and Concerns
Currently, the exchange rate of the Zimbabwean dollar against the US dollar on the black market is more than $2,000 for $1 US. This significant devaluation of the currency has raised concerns among economists and the International Monetary Fund (IMF). They caution against the effectiveness of the gold-backed digital currency and recommend liberalizing the foreign-exchange market as a more viable solution.
According to experts, gold-backed digital currency will not fully resolve Zimbabwe’s currency woes. While the currency may mop up excess liquidity and stabilize the local unit, it may only benefit the wealthy, leaving ordinary citizens, who face extreme poverty, unaffected.
Investment Attractiveness Ranking
According to the Fraser Institute’s 2022 Annual Survey, Zimbabwe ranks the lowest among 62 nations in terms of investment attractiveness. This further highlights the challenges the country faces in rebuilding trust and attracting foreign investment.
Month: Current Affairs - May, 2023
Category: Economy & Banking Current Affairs - 2024