Harare — Zimbabwe launched a new gold-backed digital currency in an effort to halt re-dollarization, which the administration of President Emmerson Mnangagwa worries could destroy the country’s already struggling economy.
The digital tokens, also known as Zimbabwe Gold (ZiG), which are primarily measured in milligrams, can be used for transactions by both private individuals and businesses, according to the nation’s Central Bank. In addition to being priced in U.S. dollars and local currency, they can be purchased via banks in ZiG, while bank customers can make purchases with ZiG accounts through POS (point-of-sale) systems or online payments.
Zimbabwe introduced gold coins in July 2022 to be used in peer-to-peer and peer-to-business transactions, as well as serve as a store of value as the local currency continued to depreciate against major currencies. Physical gold coin owners can swap or convert their coins into digital tokens that are backed by gold through the banking system.
After a decade of dollarization that followed record-breaking hyperinflation under former leader Robert Mugabe, Zimbabwe reinstated its own currency in 2019. The Zimbabwean dollar, however, rapidly depreciated against foreign currencies. This week it was trading at a rate of ZWL$5,252 to $1, and on the black market, one dollar can now be bought for ZWL$10,000.
To defend the local currency at the height of the Covid-19 pandemic, the government instituted a multi-currency system. Today, authorities estimate that US dollars account for 80% of economic transactions.
Zimbabwe’s top export product is gold. The nation produced 35.2 metric tonnes last year and in 2023, according to the administration, it aims to produce 40 metric tonnes in an effort to boost mining sector income and revive the flagging economy. The majority of the the country’s gold, according to watchdogs, is sold through unauthorized channels. A documentary by Al Jazeera revealed how members of the southern African country’s political elite smuggled the gold to refineries in Dubai.
The Reserve Bank of Zimbabwe denied having any connections to the smugglers after claims that the smugglers used the Central Bank to launder money through its gold buying activities.
Soaring inflation is piling pressure on President Emmerson Mnangagwa in a country that still remembers the economic chaos under Mugabe’s almost four decades of rule. Hyperinflation forced the country to abandon the Zimbabwe dollar in 2009, and it opted instead to use foreign currencies, mainly the U.S. dollar.