• The Zimbabwe dollar has been depreciating against the US dollar.
• The country has been struggling with inflation for more than a decade now.
• The Reserve Bank of Zimbabwe (RBZ) has announced plans to launch a gold-backed digital currency.

While countries work on central bank digital currencies (CBDCs) and others like El Salvador embrace Bitcoin as their legal tender, Zimbabwe has announced a plan to launch a gold-backed digital currency.

The Reserve Bank of Zimbabwe (RBZ) towards the end of last week announced that it was working on a gold-backed digital currency that will become legal tender in the country. The move is part of the Zimbabwean government’s strategy to keep the local currency from depreciating further against the US dollar.

Hedging against currency instability

According to reports from local media, the gold-backed digital currency will allow the Zimbamweans to trade tiny sums of Zimbabwean dollars for the digital gold token. This will allow Zimbabweans to hedge against their local currency instability.

According to the governor of the Reserve Bank, John Mangudya, the objective of the digital currency is to “leave no one and no place behind.” The governor however added that they expect the “parallel market currency rate to stabilize once tobacco growers receive their payments in USD in the coming weeks.”

Mangudya claims that the current Zimbabwean dollar exchange rate volatility is a result of expectations of increased foreign currency supply in the market because of the tobacco season. Currently, the Zimbabwean dollar is trading at 1,001 ZWL per $1 and is routinely traded at 1,750 ZWL per $1 on the streets of the national capital, Harare.