Zimbabwe is launching gold-backed digital tokens as President Emmerson Mnangagwa’s government struggles to shore up the southern African nation’s inflation-wracked currency months ahead of the election.
The Reserve Bank of Zimbabwe said the tokens would “expand the tools of storage of value available in the economy,” a reference to a steep drop in the value of the Zimbabwean dollar. But the planned launch shines a spotlight on another round of currency chaos led by the ruling Zanu-PF party’s use of money printing ahead of this summer’s election.
THE Zimbabwe The dollar has lost more than half its value since late last year to reach about 2,200 against the US dollar in the country’s parallel market, compared with an official rate of about Z$1,000 that comes from foreign exchange auctions to importers.
Now Harare is betting on the success of digital investing, hoping its backing with gold will dampen price pressures in a country that has regularly suffered hyperinflation cycles. Monday’s launch will follow last July’s issuance of physical gold coins as stores of value.
Zimbabwe produced 35 tonnes of gold last year and the central bank is a major buyer through a gold trading subsidiary. Last week, gold futures prices equaled a all-time high of $2,072 one troy ounce.
The central bank has said that digital tokens will be backed by gold in its reserves and will be refundable at international rates after 180 days. But analysts called the scheme a distraction from the root causes of the currency crisis.
The token issuance “has absolutely nothing to do with what’s happening on the ground – it’s a sideshow,” said Tinashe Murapata, an economist, who added that the central bank had given some additional details on the physical gold backing for the token scheme, such as archiving or auditing.
As ordinary Zimbabweans move away from the local currency, its slippage “is the thing [the bank] he should be concerned,” Murapata said.
Inflation continued to climb into triple digits when measured in Zimbabwean dollars, although the central bank adopted a “blended” rate that includes prices in both Zimbabwean and US dollars. This rate is around 87%. Zimbabwe’s main interest rate is 140%, after reaching 200% in January.
The central bank said gold coin sales, worth up to Z$25 billion through the end of March, had “helped dissipate domestic inflationary pressures”.
But because the digital gold tokens will be linked to the official exchange rate, analysts said the bank is supporting demand for Zimbabwe dollars by effectively offering them at a discount to the parallel rate.
“There is a very clear arbitrage opportunity through participating in the forex auction or buying gold coins,” said Richard Honey of Msasa Capital, an investment advisory firm based in Harare.
Economists say the central bank isn’t even addressing a root cause of the currency’s collapse: money printing to finance government spending, which is reflected in an increase in the money supply this year. Harare is preparing for its second election since the 2017 coup that toppled Mugabe.
“They are printing – we are in an election period,” Murapata said. “Unfortunately, [the country’s] income is not enough. We have insatiable spending. It will take profound institutional reforms to solve it”.
Zimbabwe has struggled with monetary chaos ever since hyperinflation under Mugabe wiped out the value of an earlier form of the Zimbabwean dollar in 2008-09. Money printing and foreign exchange shortages before Mugabe’s fall led to the rise of a ersatz “bond” currency that overshadowed the US dollar and was reworked into a resurrected Zimbabwean dollar by the post-coup government in 2019 .
The new currency has lost value despite frequent attempts to enforce its use. The move to a mixed inflation rate has acknowledged the rise in US dollar transactions, but Zimbabwean businesses have said the move will hurt accounting standards.
“The complexity of doing business in Zimbabwe continues to increase,” said Honey.
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