…By Roland Peterson for TDPel Media. Zimbabwe’s Reserve Bank has launched gold-backed digital tokens to support the struggling Zim dollar in the lead-up to summer elections.
The tokens will be supported by gold reserves and can be redeemed at international prices six months after purchase.
In 2022, Zimbabwe produced 35 tonnes of gold, and the central bank is one of its major buyers.
The new investment aims to combat hyperinflation and dampen price pressures in the country.
The move follows the launch of physical gold coins in 2022.
While some analysts support the scheme, others argue that it is a distraction from the underlying issues causing the currency crisis.
Tinashe Murapata, an economist, believes that the central bank has provided limited details regarding the physical gold backing for the digital token scheme, such as auditing and storage.
Additionally, the tokens will be linked to the official currency rate, offering them at a discount to the parallel rate, which analysts say will prop up demand for the Zimbabwe dollar.
Richard Honey of Msasa Capital also noted that there was an arbitrage opportunity through participating in the forex auction or buying gold coins.
The launch of digital tokens has drawn attention to the currency turmoil driven by Zimbabwe’s ruling Zanu-PF party’s use of money printing ahead of the elections.
Harare is printing money to fund government spending, and economists argue that the central bank is not addressing the source of the currency crash.
The country has been grappling with monetary chaos since hyperinflation under Mugabe decimated the value of an earlier form of the Zimbabwe dollar in 2008-09.
Money-printing and foreign exchange shortages before Mugabe’s downfall led to the rise of a “bond note” that shadowed the US dollar, which was reworked into a revived Zimbabwe dollar by the post-coup government in 2019.
Experts argue that wholesale institutional changes will be required to address the currency crisis in the long term.
Murapata believes that institutional reforms are necessary to solve the issue, as the country’s revenues are insufficient.
Honey also notes that doing business in Zimbabwe is becoming more complex, and the move to digital tokens will damage accounting standards.
The digital tokens may provide a temporary solution to Zimbabwe’s currency woes, but broader institutional reforms are required for a lasting solution.
The launch of the digital tokens has brought attention to the underlying issues causing the currency crisis, including money printing by the ruling party and limited institutional reforms.
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