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Zimbabwe’s Blockchain Experiment: Economists Doubt Gold-Backed Digital Token’s Potential to Curb Currency Crisis

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  • Zimbabwe’s gold-backed digital token, an innovative attempt by the Reserve Bank of Zimbabwe (RBZ) to stabilize the local currency, is met with skepticism from economists.
  • Despite the initial interest in the token, its uptake has since plummeted, suggesting that without strong macroeconomic policies, the token alone cannot solve Zimbabwe’s hyperinflation issues.

In a move unprecedented in the country’s economic history, Zimbabwe introduced a gold-backed digital token this May, initiated by the Reserve Bank of Zimbabwe (RBZ). However, economists argue this token won’t be the silver bullet to the nation’s persistent currency instability, suggesting more traditional macroeconomic policies instead.

The digital token, whose value is backed by Zimbabwe’s gold reserves, was issued in response to the crippling inflation that followed the dramatic collapse of the Zimbabwean dollar in 2008, an event that set a record with monthly inflation rates skyrocketing as high as 79.6 billion percent.

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Zimbabwe has since grappled with rampant hyperinflation. In an effort to mitigate this, the nation introduced a new Zimbabwean dollar (ZWL) in 2009, with twelve zeros stripped off from the previous currency (ZWD). But by June 2023, inflation surged to 175.8% following significant devaluation of the local currency.

Skeptics, including Prosper Chitambara, a senior research economist at the Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ), suggest that the token is unlikely to arrest the growth of money supply – the root issue. The token alone, they argue, lacks the power to reduce the money circulating in the economy in the absence of sturdy macroeconomic policies.

Interestingly, despite the inflation turmoil, the Zimbabwean dollar is still in use alongside the U.S. dollar, which the locals view as less volatile. Given this scenario, the central bank officials aspire for the gold-backed digital token to reduce the need for foreign currency, according to RBZ Governor John Mangudya.

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Mangudya pointed out that in times of hyperinflation, people seek a reliable store of value. Thus, the central bank hoped that this digital token could fulfill this need. However, as the token’s slow adoption indicates, it falls short of effectively tackling hyperinflation.

Indeed, the token showed promise initially, attracting 135 applications worth around $12 million in the first four days of issuance. Still, it couldn’t halt the depreciation of the local currency against the U.S. dollar. The demand for the token has since dwindled, according to the latest figures from the central bank.

Both Chitambara and Varun Paul, director of Central Bank Digital Currency and Market Infrastructure at institutional crypto custody platform Fireblocks, emphasize the need for sound macroeconomic management to resolve Zimbabwe’s currency dilemma. The RBZ has indeed implemented a restrictive monetary policy, but public spending continues to grow, contradicting the efforts to control money supply.

The International Monetary Fund (IMF), currently in discussions with Zimbabwe about clearing its hefty debt, has also expressed its reservations about the token initiative. Despite these hurdles, the journey to a stable Zimbabwean economy continues, with experts echoing a crucial advice:

“Don’t spend what you don’t have.”

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Jack Williams
Jack Williams
As a Blockchain Analyst, I specialize in analyzing the performance of decentralized systems and optimizing their efficiency. Through data analysis, I provide insights on blockchain technology, smart contracts, and cryptocurrencies to help businesses make informed decisions and improve their operations.
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