Good day everyone,
I hope you are all well and having an excellent week, welcome to CryptoGod-1’s blog on all things crypto. News has recently emerged that Zimbabwe is looking at creating a gold backed digital currency in an attempt to control the country's local economy.
Zimbabwe Plans For Digital Currency
It was announced by the Reserve Bank of Zimbabwe (RBZ) that there are plans in place to introduce a digital currency for the nation which will be back by reserves of gold. The plan is for this to be used as legal tender within the country, likely to eventually become the main and only legal tender. It will be usable for transaction within the nation while allowing the country to move towards anchoring the Zimbabwe Dollar with gold reserves. This would be done with digital gold tokens, held in physical form by the issuing authority.
The governor of RBZ, John Mangudya, made the announcement, stating:
"We shall soon be introducing digital gold tokens to ensure that those with low amounts of local currency are able to purchase the gold units so that we leave no one and no place behind."
Existing Zimbabwe Economy
The nation currently makes use of the Zimbabwe Dollar and US Dollar. However, the introduction of the digital gold token would allow citizens with low amounts of local currency to purchase the units as a hedge against inflation and volatility of exchange rates. Zimbabwe has long been an excellent case study of how inflation and bad monetary management / control can destabilise a currency and nation.
Back in 2009 the country was forced to abandon its Zimbabwe dollar and replace it with the U.S. dollar as hyperinflation made the local currency worthless. For context, a 100 trillion dollar banknote was released by the Reserve Bank of Zimbabwe (RBZ) during the crisis peak of Zimbabwe's massive hyperinflation period in 2008. Three times, in 2006, 2008, and 2009, the currency was redenominated to tackle the inflation.
After abandoning their currency, the nation adopted the USD and not until 2019 did they reinstate their Zimbabwe dollars. This was done as part of plans to revive the economy, but the Covid-19 pandemic caused the government to authorize the use of foreign currencies. In 2022 they announced that the multi-currency system would be maintained in the nation for another five years as a minimum.
Back in March 2023 the government announced that they are once again using measures to tackle inflation in the nation, as it began to weight the average price of items in the Zimbabwean Dollars and US Dollars. While the government is working to stabilise the currency, apparently the locals are taking things into their own hands. The lack of money within the nation is very much evident, as some businesses are starting to print their own 'money' and hand that out instead of actual change. The money is just paper, often signed or stamped, and customers can redeem it for future purchases.
A large issue for the nation has been their 'expectation of an increased amount of foreign currency' which would have somewhat flooded the market due to the tobacco marketing season opening in the last month. However, this did not materialise as expected and the RBZ argued that "the movements in the parallel market rate" once the tobacco farmers receive their U.S. dollars.
Due to foreign currency being seen as a better store of value in Zimbabwe than local currency, people are often changing from the Zimbabwe dollar to other ones in a bid to ensure their money is safe and secure. The digital currency is seen as a way of tackling this issue, but there are many factors at play which Zimbabwe must tackle to ensure their currency and economy remains stable.
Crypto could be the solution, but it will not be the only solution and will need to work in tandem with other parts of the ecosystem to keep the levels of inflation manageable within the country. It will interesting to see how the nation adapts to a digital currency but they can certainly look to El Salvador as an example of how a nation can switch to a digital currency as they look to achieve this goal.
Have a great day.
Peace. CryptoGod-1.
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