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Zimbabwe is launching a local digital currency alternative to the US dollar

Zimbabwe is introducing local digital tokens in the hope of reducing reliance on the US dollar Zimbabwe will launch a digital currency next month...

The Reserve Bank of Zimbabwe is also expected to improve the flexibility of investment instruments in terms of divisibility through its actions.

  • Zimbabwe introduced gold-backed local digital tokens to reduce dependence on the US dollar.
  • The Reserve Bank of Zimbabwe (RBZ) confirmed through a press release that the bank would fully back these tokens with physical gold held by them.
  • RBZ governor John P Mangudya previously stated that people could use the currency for peer-to-peer payments and transactions.
  • The government’s goal with the issuance of gold-backed digital tokens is to expand the range of value-preserving financial instruments available in the economy.
  • This move is expected to enhance the divisibility of investment instruments and make them more accessible and usable for the public.
  • International gold prices, as determined by the London Bullion Market Association, will influence the local pricing of the tokens for circulation and use within Zimbabwe.

A brief timeline of Zimbabwe’s currency collapse

1998-2007: Due to monetary policy mismanagement, Zimbabwe’s annual inflation rate hit 47% in 1998. Over the next decade, hyperinflation kept on getting worse. The government’s poorly implemented land reform initiatives stymied agricultural production, and a food supply crunch sent prices spiraling upward. The banking sector collapsed due to economic sanctions imposed by the US, European Union, and the IMF. Then, the Zimbabwe government printed huge sums of new bills to fund action in the Democratic Republic of the Congo, and underreported it, tipping the scales.

Gold-Backed Token Will Be Used In Two Phases

Mangudya announced that the government plans to release the digital tokens as an alternative to the US dollar in two phases, commencing on Monday.

First Phase
  • Mangudya announced the issuance of tokens for investment purposes.
  • A vesting period of 180 days will apply to these tokens, and users can redeem them in a manner similar to physical gold coins.
  • They will be available for purchase in both foreign currency and the Zimbabwe dollar through banks.
  • Banks will establish dedicated accounts (e-gold wallets or e-gold cards) for holding the gold-backed digital tokens.
  • Holders of physical gold coins will have the option to exchange them for gold-backed digital tokens, but this process will exclusively occur through the banking system.
Phase Two Will Ensure Person-to-Person (P2P) Transactions
  • Gold-backed digital tokens, held in e-gold wallets or e-gold cards, will serve for Person-to-Person (P2P) and Person-to-Business (P2B) transactions and settlements.
  • These tokens will function as both a payment method and a store of value.
  • Individuals are required to set a minimum purchase amount of $10, while financial institutions, corporates, and organizations must make a minimum investment of $5,000.
  • Pricing of the gold-backed digital tokens in foreign currency will align with the international gold price determined by the London Bullion Market Association (LBMA) PM fix.
  • Payments for the gold-backed digital tokens or physical gold coins in Zimbabwe dollars will maintain a 20 percent margin above the willing-buyer willing-seller interbank mid-rate.

1980: Renaming of the Rhodesian dollar to the “Zimbabwe dollar” after gaining independence from Britain.

2003: Issuance of the initial series of low-denomination bearer cheques to alleviate cash shortages.

2006: Introduction of a second series of higher-denomination bearer cheques until 2008, with notes reaching as high as 10 trillion dollars due to rampant inflation.

2009: Adoption of a multi-currency system featuring the US dollar, the euro, the British pound, and the South African rand, effectively ending hyperinflation.

2009: Demonetization of the Zimbabwe dollar as multi-currencies take precedence in daily transactions.

2016: Introduction of the bond note, a currency claimed to hold the same value as the US dollar, in December.

2018: Reintroduction of the Zimbabwe dollar, also referred to as the real-time gross settlement (RTGS) dollar.

2019: Prohibition of the US dollar in local transactions.

2022: Launch of gold coins in Zimbabwe to stabilize the faltering currency.

2023: Introduction of a gold-backed digital currency in Zimbabwe.

One big number: Zimbabwe’s peak hyperinflation

In November 2008, Zimbabwe experienced hyperinflation with a staggering monthly rate of , equivalent to an astonishing daily rate of 98%. This marked the second most severe hyperinflation in history, surpassed only by Hungary’s post-World War II hyperinflation. In Hungary, prices doubled every 15 hours as the government resorted to inflation as a means of taxing its citizens to meet postwar reparations, fulfill obligations to the occupying Soviet army, and rebuild its productive capacity.

Charted: The US dollar is still king

Countries held the currencies in global reserves at the end of 2022.

US Dollars58.36%
Japanese yen5.51
Pound sterling4.95
Chinese renminbi2.69
Canadian dollars2.38
Australian dollars1.96
Other currencies3.45

Read also: Nebular Hypothesis

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