Zimbabwe, a country that has been plagued by hyperinflation and currency instability, is planning to introduce a digital currency backed by gold.
The Reserve Bank of Zimbabwe (RBZ) hopes that this initiative will help stabilize the local currency and boost confidence and demand in the economy.
The RBZ has been accumulating gold reserves and other precious minerals since last year, when it introduced a policy that compels miners to pay part of their royalties in cash and metal.
The central bank has also been encouraging gold production, which is one of the main sources of foreign currency for the country. According to state-owned media, the country had 350 kilograms of gold in reserves as of earlier this month, and targets a 14% increase in gold production to 40 tons this year. The plan for a gold-backed digital currency was approved by the RBZ's monetary policy committee last month. The central bank will issue digital tokens that are backed by real gold held at the RBZ.
The tokens will serve as legal tender for domestic transactions, and will offer a digital alternative to physical gold coins, which were introduced last year as a store of value.
The RBZ hopes that by pegging its currency to gold, it can avoid further devaluation and offer a hedge against inflation. Gold is widely regarded as a safe-haven asset that retains its value over time and is resistant to external shocks. Zimbabwe has abundant gold resources and potential, which could give it an edge over other countries that rely on fiat currencies.
However, some challenges remain for the implementation of the gold-backed digital currency. The RBZ will have to ensure that it has enough gold reserves to back up its tokens, and that it can prevent fraud and counterfeiting. It will also have to convince the public and the market to adopt and trust its new currency, which may not be easy given its history of monetary mismanagement and instability.
