In a recent move by the Zimbabwean government, it sold millions of gold-backed crypto tokens. This was done despite warnings from the IMF.
As of 12th May 2023, the Reserve Bank of Zimbabwe has sold gold-backed digital tokens that are currently valued at around $39 million.
The central bank of the country announced on the same data that it has received applications from 135 individuals and institutions to purchase the gold-backed cryptocurrency that is currently worth 14.07 billion Zimbabwean dollars.
The current exchange rate shows that one US dollar is equal to around 362 Zimbabwean dollars. However, the rates are expected to be higher than that on the streets. Therefore, it would make the entire value of the gold-backed cryptocurrency around $38.9 million.
What are the Gold-backed Crypto Tokens?
The crypto tokens came into the market in April and are backed by 139.57 KG of gold. The sale for the crypto tokens was running from the 8th of May to the 12th of May.
Additionally, the Zimbabwean government set a minimum price of the gold-backed crypto tokens at $5,000 for corporations and other business entities. On the other hand, the minimum price for individuals was set at $10. Furthermore, it set a 6 month vesting period for the tokens, which the individuals and entities could hold on e-gold cards or in e-gold wallets
The Reserve Bank of Zimbabwe has set the second round of digital tokens to be up for sale this week. It has already started accepting applications so that they can be settled by the 18th of May.
The Reason behind the Reserve Bank of Zimbabwe’s Move
One of the biggest reasons for this move by the Reserve Bank of Zimbabwe is to help stabilize the country’s dwindling economy. It aimed to stop the local currency’s continuous depreciation against the greenback.
Zimbabwe has been struggling with currency fluctuations and inflation for more than a decade. After the financial crisis of 2009, the country decided to use the U.S. dollar as its official currency due to hyperinflation.
In 2019, the government reintroduced the Zimbabwean dollar in the market in a bid to restore the country’s struggling economy. However, it did not go according to the plan and the government had to bring back the U.S. dollar again into the market to curb the high inflation
In 2019, the currency was brought back to revive Zimbabwe’s struggling economy. However, volatility continued to remain throughout the nation. Last year, the government decided to use the U.S. dollar again in a bid to curb surging prices in the country.
Dr. John Mangudya, RBZ’s governor, spoke to the local media about this move and said that issuing the digital tokens backed by gold aims to boost the value-preserving instruments that are circulating in the economy.
Furthermore, it also aims to boost the divisibility of the investment options available by allowing the public to access and use them.
Warning from the International Monetary Fund
The International Monetary Fund (IMF) has warned the Zimbabwean government and other African nations who plan on selling their gold-backed currency.
According to a report issued by Bloomberg on May 9, the Fund argues that the governments should focus on liberalizing their foreign exchange market rather than selling these digital assets.
Speaking to Bloomberg, an IMF official stated how there is a need for a careful assessment of this move to ensure that the benefits it offers outweigh the risks and costs associated with it.
This means that they should take into consideration various factors such as macroeconomic and financial stability risks, issues with legal and operational frameworks, governance risks, and the opportunity cost of forgone forex reserves, and other things.