Columbus Mavhunga
The International Monetary Fund (IMF)says Zimbabwe’s monetary controls part of the problem, careful assessment needed to ensure benefits of digital currency outweigh the costs and potential risks,
Zimbabwe's central bank on May 8 launched a gold-backed digital currency it hopes will reduce the demand for US dollars and the devaluation of the Zimbabwe dollar. But analysts say the government-controlled foreign-exchange market is fueling the problem.
Zimbabwe’s dollar was re-introduced in 2019 but now trades at more than 2,000 to the US dollar on the black market.
The government hopes the release of a gold-backed digital currency will reduce the Zimbabwe dollar’s rapid devaluation.
Mthuli Ncube, Zimbabwe’s Minister of Finance, said, “It’s a very positive thing. These digital coins are backed by physical gold in our vaults, so it’s a very solid instrument. So, anyone buying it should feel comfortable that it’s a solid instrument that will preserve value.”
Companies buying the new digital currency hope it can protect their local currency investments. Farai Gwaka is the general manager of Zimnat Asset Management, says, “We do have quite a bit sizeable amount of local currency investments, especially money market and the like. Upon analyzing the proposal from the reserve bank, we quickly realized that it’s a very useful hedging instrument. Because it is linked to hard asset which is gold it will protect you in terms of any potential currency devaluation.”
But in written comments to VOA, the International Monetary Fund’s office in Zimbabwe expressed concern about the digital currency and market controls.
It said a careful assessment was needed to ensure the benefits of the new currency outweigh the costs and potential risks.
Economists say having enough gold to back the tokens is a concern. Prosper Chitambara is an economist with the Labor and Economic Development Research Institute of Zimbabwe.
“On paper, I am saying a digital gold currency is actually a sound idea economically. But I t hink there is need for greater transparency in terms of issues like reserves, how much (gold) reserves we have as a country, to be able and successfully back and defend these digital gold coins.”
Zimbabwe state media in April reported the government had about $23 million in gold and planned to build its reserves to $100 million.
Last year Zimbabwe introduced a physical gold coin to try to stabilize its dollar, but the currency has since dropped to less than a third its value.
Analysts say a big problem is Zimbabwe’s controls on the currency market, which values the local dollar at more than six times the rate it trades for on the black market.