ZIMBABWE’S plan to introduce a gold-backed digital currency has stirred debate as to whether or not the southern African nation is warming up to growing calls to move away from relying on the US dollar for trade, The NewsHawks has established.
BERNARD MPOFU
As many economies battled to come to terms with the effects of the Second World War, the United States dollar was established as the world’s foremost reserve currency by the Bretton Woods Agreement of 1944.
Early this year the Reserve Bank Monetary Policy Committee, a team of independent economic thinkers, hinted that the apex bank would in 2023 introduce digital gold tokens to ease the growing demand on the greenback.
Now the central bank is on the cusp of doing so and the lender of last resort is optimistic that this move would in future help the authorities in their de-dollarisation project. But not many seem to agree. Already 80% of the economy has been de-dollarised and experts say an untimely plan to re-introduce the local unit may result in unintended consequences.
Prosper Chitambara, a senior researcher at the Labour and Economic Development Research Institute of Zimbabwe, a research think-tank of the Zimbabwe Congress of Trade Unions (ZCTU), said Zimbabwe, a net importer, has joined the list of countries opting to ditch the dollar as a currency of trade.
“On paper, definitely they are contagious, these digital gold tokens. There are more options in terms of the store of value so they will off course operate or issued alongside the gold coins and even the United States dollar,” Chitambira says.
“I think they help through mopping up of excess Zimbabwe dollars to stabilise the situation like we saw with the gold coins. So effectively the purpose is similar. So they are providing an alternative not just investment but also an alternative currency and store of value.
“We have seen similar trends across the world, so it is not just the Reserve Bank of Zimbabwe that is going this route. I think most central banks have been exploring digital currency in one form or the other and we have also seen that a lot of countries are moving from the US dollar. It is really part of the process of reducing reliance on the US dollar and trying ensure that there is greater stability.”
John Legat, Imara Asset Management chief executive, says the shroud of secrecy surrounding the salient features of the new currency is not good for the markets.
“It is for this reason that we were apprehensive when the RBZ Monetary Policy Committee announced the launch of gold-backed digital products i.e. digital tokenisation of gold coins ostensibly to complement the current issuance of physical gold coins,” Legat wrote in a quarterly economic update for the period ending March 2022.
“Despite various concerns — also shared by the IMF — on the use of gold coins as a monetary policy tool; in the original format you could at least take physical possession of the serialised gold coin after purchase. The mechanics of the digitally backed products have not been availed, but we are wary of the initiative coming at a time when the actual coins have not been easily available.”
Leon Africa chief executive Tinashe Murapata warned that the new digital token could backfire.
“The RBZ is again off the tracks with another crazy idea. If RBZ believes in backing currency with gold, why not back their own issued currency, ZWL, with gold? The PMR [parallel market rate] rate is now 1 800, double the January rate in four months,” Murapata says.
“Inflation is spiralling out of control. Yet RBZ has ‘gold reserves’ to back digital currency. They should back ZWL with gold and the rate ( including inflation) will stabilise. Surely, it’s simple enough.”
As the geopolitical tensions intensify following Russia’s war on Ukraine and the re-emergence of the multipolar political system, more and more countries — from Brazil to southeast Asian nations — are calling for trade to be carried out in other currencies besides the US dollar.
The US dollar has been king in global trade for decades — not just because the US is the world’s largest economy, but also because oil, a key commodity needed by all economies big and small, is priced in the greenback. Most commodities are also priced and traded in US dollars.
Experts say since the Federal Reserve embarked on a journey of aggressive rate hikes to stem domestic inflation, many central banks around the world have raised interest rates to stop capital outflows and a sharp depreciation of their own currencies. At 150%, Zimbabwe has one of the highest interest rates which many warn could have a boomerang effect on the economy.
According to data from International Monetary Fund’s Currency Composition of Foreign Exchange Reserves (COFER), the US dollar accounted for 58.36% of global foreign exchange reserves in the fourth quarter last year.
Comparatively, the euro is a distant second, accounting for about 20.5% of global forex reserves while the Chinese yuan accounted for just 2.7% in the same period.
