In the face of triple-digit inflation, Zimbabwe’s central bank, Reserve Bank of Zimbabwe (RBZ), is considering the rollout of gold-backed digital tokens (GBDT) for retail transactions. Already enjoying success with investors, the token serves as a commendable economic instrument backed by physical gold reserves.
Launched in April, the RBZ has overseen 11 issuances of the GBDT, equivalent to 325 kg of gold. The bank now plans to enable GBDT for public transactions, a move that could serve as an alternative to the heavily relied upon US dollar in domestic transactions, offering a more secure, convenient, and value-preserving medium of exchange.
A notable part of this strategy is GBDTs’ unique advantage of divisibility, offering flexibility to investors and consumers. It was only last year that the RBZ started issuing physical gold coins, and despite their popularity, they encompassed a mere 2% rate of redemption. Unlike physical coins, GBDTs can be easily divided and securely handled, making them a more practical alternative.
This move isn’t without context. In June, the inflation rate in Zimbabwe touched an alarming 175.8%, prompting the central bank to set the interest rate at 150%. The U.S. dollar, being the standard in local trade, is arguably feeling the pressure. However, GBDTs, if successfully employed, can harness this high inflation rate, creating a competitive demand for the US dollar and maintaining an economic balance.
Additionally, the RBZ’s expedited efforts to launch a central bank digital currency (CBDC) have been making notable progress since July 2022. In a recent survey, they found that approximately 71.7% of respondents are willing to adopt such a currency. Interestingly, the GBDT’s key characteristics – divisibility and security – align closely with those desired in a CBDC, indicating that the gold-backed token could form the cornerstone for a future CBDC ecosystem.
At this juncture, though, the broader implications of the token’s retail expansion are uncertain. However, it’s safe to say this move is a critical test for the GBDTs, the CBDC, and Zimbabwe’s central bank policies overall. Considering the complex economic conditions Zimbabwe faces, the implementation of these technologies could revolutionize its financial landscape, perhaps providing a survival mechanism through turbulent times.
Source: Cointelegraph
