The Reserve Bank of Zimbabwe has announced plans to introduce a gold-backed digital currency to serve as legal tender in the country. The move is a government initiative aimed at stabilizing the local currency from continued depreciation against the U.S. dollar. The gold-backed digital currency will allow small amounts of Zimbabwean dollars to be exchanged for the digital gold token, enabling more Zimbabweans to hedge against currency volatility. The plan intends to “leave no one and no place behind,” according to Reserve Bank of Zimbabwe Governor John Mangudya.

Currency Volatility in Zimbabwe

Zimbabwe’s currency currently trades at 1,001 ZWL against $1 but is typically exchanged for 1,750 ZWL on the streets of Harare, the country’s capital. The country’s annual consumer price inflation reached a one-year low in March at 87.6%, down from 92% in February. 

However, the exchange rate in the parallel market is expected to stabilize after tobacco farmers receive their U.S. dollar payments in the coming weeks, according to Mangudya. He said the current exchange rate volatility has been caused by “expectations of increased foreign currency supply” on the market due to the tobacco season. The monetary dysfunction in the country and lack of changes have led to businesses printing their “own money,” often on handwritten scraps of paper, so that users can pay for future purchases, according to a Wall Street Journal report from March.

Zimbabwe’s Economic Challenges

Zimbabwe has been fighting against currency volatility and inflation for over a decade. In 2009, the country adopted the U.S. dollar as its currency after an episode of hyperinflation. In 2019, the Zimbabwean dollar was reintroduced in an effort to revive the country’s struggling economy. Last year, the government decided to use the U.S. dollar again in a bid to curb surging prices in the country. Despite these efforts, the country has continued to face economic challenges, including a shortage of foreign currency, high levels of unemployment, and low levels of foreign investment.

Crypto Adoption in Africa

Crypto adoption has grown in many African countries as a result of economic challenges. According to Chainalysis, the Middle East and North Africa is the fastest-growing region for crypto adoption thanks to cross-border remittances, with over $566 billion in crypto transactions between July 2021 and June 2022, up 48% from the previous year. 

Zimbabwe is no exception to this trend, with increasing numbers of people turning to cryptocurrencies to protect their wealth from inflation and currency volatility. In 2018, the Reserve Bank of Zimbabwe banned local banks from dealing with cryptocurrencies, citing the need to protect the country’s financial system from “illegal activities.” However, the ban was lifted in May 2020, and since then, interest in cryptocurrencies has continued to grow in the country.

Conclusion

The introduction of a gold-backed digital currency in Zimbabwe is a significant development for the country’s economy. By allowing more Zimbabweans to hedge against currency volatility, the digital gold token has the potential to stabilize the local currency and encourage economic growth. However, it remains to be seen whether the government’s plan will be successful in achieving these goals. In the meantime, the growing adoption of cryptocurrencies in Zimbabwe and across Africa highlights the need for governments and financial institutions to adapt to changing economic realities and provide innovative solutions to the challenges faced by their citizens.