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RBZ set to roll out Gold Backed Digital Coins on May 8; hopes move will shore up weakening Zim dollar

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By Staff Reporter & Associated Press


THE Reserve Bank of Zimbabwe (RBZ) is set to roll out gold backed digital tokens on May 8 amid market expectations that the instrument will ease the current exchange rate volatility.

The initiative comes at a time black market premiums have breached US$1: ZWL2,000 with the local currency also facing severe headwinds after breaching US$1: ZWL1,000 recently becoming the worst fall this year.

Market analysts have however, levelled the blame on the government’s bulk payments extended to its contractors and service providers who end up offloading the money on the parallel market in exchange for US$.

Due to their divisibility and enhanced accessibility, market watchers believe that coupled with other measures, the tokens will help mop up “bad money” in the economy.

In an update Friday, RBZ governor, John Mangudya said the instrument will be rolled out after one week.

“As previously advised, the issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public.

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“Phase 1: Gold-backed digital tokens will be issued for investment purposes with a vesting period of 180 days and redeemable in the same way as the existing physical gold coins. The tokens will be available for sale, through banks, in both foreign currency and Zimbabwe dollar,” he said.

Under the arrangement banks will create dedicated or specific accounts for the holding of the gold-backed digital tokens (e-gold wallets or e-gold cards).

Reserve Bank of Zimbabwe Governor, John Mangudya holds a sample of a gold coin at the launch in Harare

Holders of physical gold coins, at their discretion, will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens.

He said under Phase 2, the gold-backed digital tokens held in either e-gold wallets or e-gold cards will be tradable and capable of facilitating Person-to-Person (P2P) and Person-to Business (P2B) transactions and settlements implying that the gold-backed digital tokens would be used both as a means of payment and a store of value.

“The Bank also advises that the pricing of the gold-backed digital tokens in foreign currency shall remain the same as the pricing model of the physical gold coins as informed or guided by the international gold price as determined by the London Bullion Market Association (LBMA) PM fix.

“Payment for the gold-backed digital tokens or physical gold coins in Zimbabwe dollar shall remain at the current 20% margin above the willing-buyer willing-seller interbank midrate,” added Mangudya.

The Bahamas, Jamaica and Nigeria have already launched digital currencies backed by their central banks, with several other countries, including China, running trial projects. The United Kingdom is moving closer to it by asking for public input on the idea. The U.S. and European Union are considering similar moves.

Trust in Zimbabwe’s currency is desperately low after people in 2008 had their savings wiped out by hyperinflation, which reached 5 billion percent, according to the International Monetary Fund, nearly a world record.

The hyperinflation resulted in the country at one point issuing a 100 trillion Zimbabwe dollars banknote before the government was forced to temporarily scrap its currency and allow the U.S. dollar to be used as legal tender.

In 2019, the government reintroduced a Zimbabwean currency and banned foreign currencies for local transactions. But few took heed and the black market thrived, while the local currency quickly devalued. The government relented and unbanned the U.S. dollar.

With memories of that disastrous inflation, many people today prefer to seek scarce U.S. dollars on the illegal market to keep at home as savings or for daily transactions, where U.S. currency is still used. Faith in the Zimbabwe dollar is so low that many retailers and even some government institutions don’t accept it.