IMF Warns Zimbabwe On Gold-Backed Digital Currency

The International Monetary Fund has urged Zimbabwean authorities to weigh the benefits versus risks of issuing a gold-backed digital currency

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The Zimbabwean monetary authorities have been urged by the International Monetary Fund (IMF) to carefully weigh the advantages of issuing a digital currency backed by gold against any potential economic risks.  The international lender suggested that instead of rushing to issue the gold tokens, officials think about liberalizing the nation’s foreign exchange market.

The Reserve Bank of Zimbabwe (RBZ) started issuing the digital currency backed by gold just days prior to the IMF’s comments.  The RBZ is attempting to reduce local demand for US dollars by introducing gold-backed digital coins.

The local currency has fallen in value on the black market from just over US$1:ZWL1000 at the beginning of 2023 to about US$1:ZWL2000 by the end of April due to high demand and limited supply for the dollar on the official market. The RBZ increased the benchmark rate in response to the local currency’s depreciation over the previous year. In the same year, the government’s central bank unveiled actual gold coins that it claimed would serve as an alternative store of value.

The IMF warned of several risks associated with such a digital currency after the RBZ began issuing the gold-backed digital currency, though.

“A careful assessment should be conducted to ensure the benefits from this measure outweigh the costs and potential risks including, for instance, macroeconomic and financial stability risks, legal and operational risks, governance risks, cost of forgone FX reserve,” the unnamed spokesperson said.

In addition to calling for the liberalization of the foreign exchange market, the IMF spokesperson reportedly advised Zimbabwe’s monetary authorities to stick to more traditional solutions, like preserving a tight monetary policy.

The Bretton Woods organization has reprimanded an African nation for using an unconventional strategy for managing its currency for the second time with this warning. After the Central African Republic adopted bitcoin, the IMF issued a 2022 warning about a possible threat to the country’s financial stability.

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