According to the Financial Times, the tokens aim to expand the value-preserving instruments available in the economy, which is in reference to a significant decline in the value of the Zimbabwe dollar. Specifically, the Zimbabwe dollar’s value has dropped by almost half since the end of 2022 and is currently worth 2,200 against the US dollar in the country’s parallel market.
The government of Zimbabwe under President Emmerson Mnangagwa is hoping that this digital investment will leverage the value of gold to minimise price pressures in a country that has gone through regular rounds of hyperinflation. The gold-backed digital tokens will represent a form of electronic money backed by Zimbabwe's gold reserves, held by the country’s central bank.
The bank aims to enable Zimbabwean dollar holders to exchange their currency for the gold-backed tokens thus providing a form of protection against the volatility of the local currency. The Financial Times further reports that Zimbabwe produced 35 tonnes of gold in 2022 and that the central bank is a leading buyer via a gold trading subsidiary. The tokens will become redeemable at international prices after 180 days. As for the prices for gold futures, they recently reached an all-time high of USD 2,072 a troy ounce.
When measured in Zimbabwe dollars, inflation in the country has reached triple digits. However, the central bank is using a mixed rate that comprises prices in both USD and ZWL. This rate is at 87% at the time of writing, while the country’s main interest rate is 140%.
Ft.com has cited economists stating that the central bank is not addressing the main cause of the currency slide, which is money printing to fund government spending.
Zimbabwe has faced monetary issues such as hyperinflation before when an earlier version of the Zimbabwe dollar dropped dramatically in 2008 and 2009. In November 2008, for instance, inflation rates reached as high as 90 sextillion per cent year-on-year. That particular hyperinflation crisis was solved by an official transition to a multicurrency framework, which led to an informal dollarisation of the economy.
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