- Gold Tokens Bolster Stability: Zimbabwe leverages gold-backed digital tokens to counter currency volatility, aiming to provide a secure foundation for its economic transactions.
- CBDC Evolution: The success of the Gold Backed Digital Tokens (GBDT) program propels Zimbabwe towards a central bank digital currency (CBDC), as it seeks to modernize its financial infrastructure.
- Currency Competition: These tokens, planned for use in payments, strive to compete with the widespread demand for US dollars in domestic transactions, potentially reshaping the currency landscape.
Zimbabwe’s Reserve Bank, under the leadership of Governor John Mangudya, has announced that their Gold Backed Digital Tokens (GBDT) program, initiated in May, has achieved significant success. These tokens are now poised to become a foundational element for the country’s Central Bank Digital Currency (CBDC) efforts. Despite the issuance of GBDTs being worth around $11 million according to international exchange rates, this marks a pivotal step towards improving stability in price and exchange rates.
The Zimbabwean economy has long suffered from currency instability, with historical inflation peaking at an astounding 79.6 billion percent during the mid-2000s. More recently, the exchange rate has exhibited fluctuations, jumping from around ZIM 1,000 to the US dollar in early May and reaching ZIM 6,750 by June 26, currently resting at ZIM 4,555. While this presents an improvement, the nation still faces challenges. Notably, July’s year-on-year inflation rate stands at 101%, though July itself experienced deflation of -15.25%.
In light of such volatile fluctuations, the introduction of gold tokens as a quasi CBDC offers a promising solution. The central bank’s introduction of physical gold coin issuance last year attracted ZW$35 billion ($7.7 million) by mid-July, with only 2% redeemed. Similarly, this year’s digital token issuance, launched in May, has garnered ZW$50.50 billion ($11.1 million). Impressively, the issuance of 11 sets of gold tokens has occurred thus far, albeit with only 590 applicants—a somewhat unexpected outcome.
Governor Mangudya indicated that the central bank began exploring a CBDC in July 2022 and found that 72% of respondents in a survey were receptive to its use. However, due to the currency’s volatility, individuals are reluctant to hold Zim dollars. Building upon this positive survey response, the central bank is preparing to transition the gold tokens into a second phase, allowing them to be used for payment transactions—a project known as ZiG. These tokens, being inherently divisible, can be used in fractional amounts. The aim is for the gold tokens to compete with the demand for US dollars, which are commonly used for domestic transactions.
To facilitate this transition, the central bank is collaborating with business associations to enable them to configure their payment systems to support cards denominated in ZiG. Additionally, plans are underway for an awareness campaign to promote understanding and adoption of the gold token system.
