The Zimbabwe is facing currency instability, especially against the U.S. dollar. To address this, the authorities plan to introduce a digital currency backed by gold and physical gold coins. The initiative aims to stabilize the local currency and provide an alternative for Zimbabwean currency holders.
Digital currency a solution to Zimbabwe’s volatile dollar
In 2008, the Zimbabwe experienced a historic inflation that was devastating to its local currency. Since then, the currency has never regained its balance against the US dollarcreating lasting economic instability.
Faced with this situation, the government is considering issuing a digital currency backed by gold in the form of Central Banking Digital Currency (CBDC) to address the problem of volatility of its local currency against the US dollar. According to The Sunday Mail, this new currency will allow citizens to conduct transactions while protecting themselves against inflation. The central bank will also be able to issue more physical gold coins.
John Mangudya, governor of the central bank explained that the tokens will allow citizens to store value and protect themselves against exchange rate volatility. This initiative aims to improve the country’s economic stability and offer an investment alternative to holders of the Zimbabwean currency.
The Zimbabwe is indeed facing a difficult economic situation, largely due to a large trade deficit. The influx of foreign currency is upsetting the exchange rate in Zimbabwe, mainly because of the high demand for foreign currency.
Influx of foreign currency shakes up Zimbabwe’s exchange rate
The governor of the Reserve Bank of Zimbabwe (RBZ) said that the instability of the parallel market rate is mainly due to the high demand for foreign currency, especially since the marketing of tobacco last March.
What we have noticed is that the demand for foreign exchange, in addition to being driven by the need to import goods and services into Zimbabwe, is also seen as a store of value.
Bank Governor’s Statement
In 2021, the inflation rate reached 98.5%, and the local currency fell against the US dollar. The creation of a digital currency backed by gold could stabilize the economy and improve the financial conditions of the population.
The Zimbabwe abandoned its own currency in 2009 after devastating hyperinflation, replacing it with the US dollar. However, in 2019, the country reintroduced its own currency, the Zimbabwean dollar.
Many countries around the world have embarked on creating their own central bank digital currency. However, some countries, such as the United States, make face challenges regarding the adoption and use of this form of currency.
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