Gold-backed digital tokens introduced in Zimbabwe as currency woes continue

Zimbabwe’s Reserve Bank introduced gold-backed digital tokens on Monday to bolster the country’s struggling currency ahead of the summer elections.

The digital tokens will be supported by gold reserves from the central bank and will be redeemable at international prices after six months. The move follows the launch of physical gold coins in 2022 as a store of value.

The Zim dollar has lost more than half of its value since the end of 2022. The new digital investment aims to dampen price pressures and tackle hyperinflation in the country. Zimbabwe produced 35 tonnes of gold in 2022, and the central bank is one of its leading buyers.

ALSO READ: South Africa is scrapping special work permits for Zimbabweans

However, some analysts view the scheme as a distraction from the underlying causes of the currency crisis. Economist Tinashe Murapata said the token issue “has absolutely nothing to do with what’s happening on the ground – it is a sideshow.”

Murapata also pointed out that the central bank had provided scant details about the physical gold backing for the digital token scheme, such as storage or auditing. Additionally, the digital gold tokens will be linked to the official currency rate, effectively offering them at a discount to the parallel rate which analysts say will have the effect of propping up demand for the Zimbabwe dollar.

ALSO READ: Zimbabwe’s ruling party’s anti-US stance obscures historical ties

“There is a very clear arbitrage opportunity through participating in the forex auction or buying gold coins,” said Richard Honey of Harare-based Msasa Capital.

ZIMBABWE’S DIGITAL TOKENS ARE JUST ANOTHER FORM OF PRINTED MONEY FROM THE RULING PARTY

The launch of the digital tokens has brought attention to another round of currency turmoil driven by the ruling Zanu-PF party’s use of money printing ahead of the elections. Harare is printing money to fund government spending and tackle expenditure that has been ongoing since the 2017 coup that got rid of Mugabe.

ALSO READ: We compared data costs in five African countries and the results may surprise you…

However, economists argue that the central bank is not addressing the source of the currency crash. Zimbabwe 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, and which was reworked into a revived Zimbabwe dollar by the post-coup government in 2019.

ALSO READ: South African rand stayed firm as dollar firms with Fed interest rates

While the introduction of these digital tokens may provide a temporary answer to the country’s currency woes, experts argue that wholescale institutional changes will be required if the problem is to be addressed. “Unfortunately, [the country’s] revenues are just not enough. It will take deep-seated institutional reforms to solve it,” Murapata added, while Honey says doing business in Zimbabwe continues to become more complex, and that the move will damage accounting standards.

READ MORE: South Africa is scrapping special work permits for Zimbabweans