Zimbabwe Reserve Bank Sells $39M Worth of Gold-Backed Digital Tokens Despite IMF warning

Despite a clear warning from the International Monetary Fund (IMF), the Reserve Bank of Zimbabwe has sold 14 billion Zimbabwean dollars' ($39 million) worth of gold-backed digital coins to address the several challenges faced by the country's financial system.

The international body had advised Zimbabwe against implementing a gold-backed digital currency as a solution to macroeconomic issues, such as instability in the local currency, Bloomberg reported. Instead, the IMF had recommended that Zimbabwe focus on liberalizing its foreign exchange market.

However, in a notice released on May 12, the Zimbabwe's central bank announced it had received 135 applications, amounting to a total of ZW$14.07 billion, to purchase the cryptocurrency backed by gold.

"The Reserve Bank of Zimbabwe would like to notify the public of the results of the RBZ Gold-backed Digital Tokens issue No. 1/2023 held on Friday 12 May 2023. The Bank received 135 applications valued at ZW$14,077,337,421 and US$810 to purchase gold-backed digital tokens. The full amount was allotted," the official notification read.

The tokens made their debut last month, with the notable mention that they were supported by a total of 139.57 kilograms of gold. The sale of these tokens commenced on May 8 and concluded on May 12.

While individuals could acquire the tokens at a minimum price of $10, corporate entities purchased them for a higher amount of $5,000.

As per the notification, Zimbabwe is currently planning another sale round for the digital tokens, and interested buyers may submit their applications between now and May 18.

As per local media reports, the introduction of Goldaz, the gold-backed tokens, aims to address several challenges faced by Zimbabwe's financial system. One major challenge is the country's ongoing struggle with inflation, which has historically led to a loss of faith in the national currency. By backing the tokens with physical gold reserves, the government seeks to provide a stable and secure alternative for investors.

Furthermore, the utilization of blockchain technology ensures transparency and enhances the efficiency of the investment process. The decentralized nature of blockchain allows for the verification and tracking of ownership and transactional history, reducing the risk of fraud and corruption. This technology also enables seamless and secure cross-border transactions, potentially attracting foreign investors to Zimbabwe's gold sector.

The introduction of gold-backed crypto tokens is also expected to increase liquidity in the gold market, as investors can now easily trade digital assets representing physical gold. This accessibility may attract a broader range of investors, including those who were previously unable to participate due to geographical constraints or limited capital.

According to local media, RBZ Governor Dr John Mangudya said, "The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public."

It should, however, be noted that the move follows a caution from the IMF against the African nation's plan for the gold-backed currency, arguing it should instead liberalize its foreign exchange market.

"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 reserves," an IMF spokesperson told Bloomberg in a May 9 report.