Zimbabwe Introduces Gold-Backed Tokens to Combat Inflation and USD Shortages

As inflation runs rampant in Zimbabwe, with levels as high as 37% against the U.S. dollar this year, the Reserve Bank of Zimbabwe (RBZ) officially issued its first gold-backed digital currency as an attempt to combat the currency losses and crumbling economy. On May 4, the RBZ announced that the new GoldBacked Digital Tokens will go for sale on May 8. Individuals can make purchases at a minimum of $10, while the central bank sets the minimum for larger entities like financial institutions and corporations at $5,000.

The first issuance will go from May 8 to May 10, with the vesting period extending for 180 days. Local token prices will come from international gold prices from the London Bullion Market Association. Any individuals purchasing the tokens with physical gold coins or Zimbabwean dollars will have to pay a 20% margin above the mid-rate.

Zimbabwe residents and organizations will be able to use the tokens for peer-to-peer payments (similarly to Zelle, ApplePay, Venmo, etc.) or to purchase from accepting vendors. According to the RBZ, citizens can use the tokens for “Person-to-Person (P2P) and Person-to-Business (P2B) transactions and settlement, [with the intended use] both as a means of payment and a store of value.”

With this new initiative, the Reserve Bank of Zimbabwe hopes to reduce its reliance on the U.S. dollar. John P Mangudya, the institution’s governor, believes the tokens will provide an innovative payment option to citizens, allowing them to move away from previous currencies. “The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public,” he explained.

While the tokens will help citizens make day-to-day purchases, they also act as an investment tool for individuals aiming to protect their finances from rampant inflation rates. The RBZ explained that another purpose of the new gold-backed digital currency is to “provide investors with a platform to save, invest and transact in gold.” Investors can trade and accept the tokens as collateral, with settlements completed in both local and foreign currencies.

Individuals will be able to purchase the tokens through banks, which will create “dedicated or specific accounts for the holding of the gold-backed digital tokens.” All transactions will go through “e-gold wallets or e-gold cards,” which the banks will control. After the 180-day vesting period, holders can trade their coins.

Zimbabwe’s central bank began issuing gold coins in July 2022 as an attempt to combat inflation and devalue the U.S. dollar. While the U.S. dollar may be a form of legal tender in the country, it remains in short supply.

Individuals can use and redeem the new tokens the same way they could with physical gold, though with added convenience now. Any holders of coins “will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens.”

Zimbabwe plans to support $100 million in gold-backed token issuance using its existing gold reserves. “Any amount around or less than $100 million will be able to deal with our challenge in a big way,” Persistence Gwanyanya, one of the central bank’s monetary policy committee members, explained. “We expect the central bank to bring a respectable quantity that can stabilize the Zimbabwe dollar and boost demand.”

Ever since the nation’s government released a new policy last year forcing local miners to pay a portion of their royalties in either precious metals or cash, the central bank has been stockpiling its reserves. Now, the Reserve Bank of Zimbabwe has a strategy to use the reserves wisely.

The de-dollarization trend is not siloed to Zimbabwe, though. Numerous nations around the globe actively want to move away from the U.S. dollar as it continues losing value. With so many countries relying on a single currency, many want to move toward a multipolar world where other nations can stand a chance with individual currencies, including local forms and more globally accepted options, like gold.

At the end of 2022, the U.S. dollar accounted for 58.36% of all global reserves. The next largest currency was the euro, accounting for just 20.47%. After these two major players came the Japanese yen at 5.51%, the pound sterling at 4.95%, the Chinese renminbi at 2.69%, Canadian dollars at 2.38%, Australian dollars at 1.96%, then all other currencies accounting for the remaining 3.45%.

The power the U.S. dollar holds over the global economy is clear. Central banks are beginning to understand that the only foreseeable strategy in moving away from such a dominant currency is by gravitating toward something more valuable, stable, and universal: gold.

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