Zim central bank unlocks payments function for digital gold tokens

Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya. File photo: Reuters

Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya. File photo: Reuters

Published May 2, 2023


Digital gold tokens being introduced by Zimbabwe on May 8 can be used as a means of payment and a store of value, according to the governor of the Reserve Bank of Zimbabwe.

Zimbabwe’s economy has imploded, with its currency tail spinning by more than 70% in the past week. Shortages of foreign currency have worsened the country’s monetary crisis, and worsened inflation.

The Zimbabwean central bank is now introducing a new currency – gold backed digital tokens – that will ultimately be used for transaction settlements and other payments. The central bank hopes this will help fight inflation and incessant value losses by its unit of exchange, the Zimbabwe dollar, by mopping up excess liquidity.

The Zimbabwean digital tokens, which the central bank says will be “backed by physical gold” held by the bank, “will be issued for investment purposes” with a vesting period of 180 days.

"The tokens will be available for sale, through banks, in both foreign currency and Zimbabwe dollar. Banks will create dedicated or specific accounts for the holding of the gold-backed digital tokens (e-gold wallets or e-gold cards),” John Mangudya, the governor of the Zimbabwean central bank, said on Friday.

He explained that “holders of physical gold coins will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens”. Zimbabwe introduced gold coins in 2022.

Under phase two of the digital gold coins being introduced in May, the Zimbabwean central bank will unlock a payments functionality for the electronic gold tokens.

Zimbabweans have flirted with digital wallets, with mobile money platforms such as EcoCash and Innbucks – which started off as a loyalty and rewards platform for the franchise operator of Nando’s and Steers – becoming popular and enabling remittances, transactions and foreign currency transfers.

Said Mangudya: “The gold-backed digital tokens held in either e-gold wallets or e-gold cards will be tradeable and capable of facilitating person-to-person (P2P) and person-to-business (P2B) transactions and settlements. It therefore means that the gold-backed digital tokens would be used both as a means of payment and a store of value.”

Finance experts say Zimbabwe’s new “digital gold coins will have zero impact on inflation if the money supply remains the same” as they will only be able to give local investors such as pension funds and others “something else to hold on to” apart from US dollars using the official exchange rate.

“The coins will only mean the demand of the ZW$ will go down, while its supply continues to increase. The coins only helped suck liquidity for a short period, but that liquidity comes back though forex purchases and government spending to contractors,” said Kudakwashe Mugova, a Zimbabwean finance management expert.

The International Monetary Fund, too, has previously warned Zimbabwe against continued use of the gold coins that other economists say will be susceptible to the volatility dogging the Zimbabwean economy. The volatility is expected to persist, with investors likely to maintain a wait-and-see attitude ahead of elections scheduled later this year.