Zimbabwe has launched a digital token backed by gold in an effort to combat its unstable local currency and rampant inflation. The Reserve Bank of Zimbabwe (RBZ) is inviting financial organizations to participate in the launch of the token, which will be issued in two phases.
The first phase will focus on investment purposes, and tokens will be sold through banks. The RBZ has set a minimum subscription amount of $10 for individuals, while financial institutions and corporations must subscribe for a minimum of $5,000. In the second phase, the tokens will be kept in digital wallets or cards to facilitate transactions between individuals and businesses.
The issuance and use of the token have been separated into two phases by the central bank. According to the RBZ, holders of physical gold coins will be able to exchange or convert them into gold-backed digital tokens through the banking system.
Zimbabwe has been grappling with a severe economic crisis, with inflation reaching a staggering 285% in 2022. The inflation rate has since decreased to 87.6% in March this year. As of June 2023, inflation was over 175% on the year so far. The country has struggled with currency instability for years, with frequent changes in the exchange rate and the introduction of new banknotes.
The move towards a gold-backed cryptocurrency is an attempt to stabilize Zimbabwe’s currency and economy. The RBZ believes that a digital token backed by gold will help to restore confidence in the financial system and reduce the country’s reliance on foreign currencies.
Gold has historically been a safe haven asset, and its value has remained relatively stable over time. By backing a digital token with gold, Zimbabwe hopes to provide a more stable currency for its citizens and attract foreign investors. This is a strategy that stood the test of time, analogous to the Great British Pound which was pegged to a pound of Sterling Silver or physical gold to the US Dollar up until 1971.
However, the success of the gold-backed token remains uncertain. The implementation of the token will depend on the participation of financial organizations and the willingness of individuals to subscribe to the new digital currency. It also remains to be seen whether the token will be widely accepted by merchants and businesses in Zimbabwe.
Zimbabwe is not the first country to experiment with a gold-backed digital currency. Venezuela launched the Petro in 2018, a cryptocurrency backed by the country’s oil reserves. However, Petro has faced significant challenges, with the US imposing sanctions on the currency and the Venezuelan government struggling to attract foreign investors.
The success of Zimbabwe’s gold-backed token will depend on a range of factors, including the country’s political and economic stability, the adoption of the token by financial institutions and individuals, and the willingness of foreign investors to support the new digital currency.
Written By Agbo Obinnaya
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