In an effort to become less reliant on the dollar as its primary currency, Zimbabwe has begun issuing its own digital tokens.
According to an announcement made on April 28 by the governor of the Reserve Bank of Zimbabwe, John P. Mangudya, Zimbabwe will begin to circulate digital tokens backed by gold reserves beginning on Monday, May 8. These digital tokens would allow individuals and enterprises to conduct peer-to-peer payments and conduct business with one another. The pricing of the tokens in the local market will be governed by international gold prices as established by the London Bullion Market Association.
“The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy, enhance the divisibility of the investment instruments, and widen their access and usage by the public,” Mangudya said in reference to the tokens. Mangudya hopes that the tokens will provide Zimbabwean citizens with an innovative new method of making monetary transactions.
The tokens will be accessible for purchase through banks, and banks will also hold “e-gold wallets or e-gold cards” to enable customers to conduct transactions using digital gold. After a vesting period of one hundred and eighty days, the tokens will become available for trading.
According to a press statement issued by the central bank on May 4, the minimum expenditure required for individuals to purchase digital tokens is ten dollars, while the minimum spend required for financial institutions, corporations, and other entities is five thousand dollars.
It is an attempt to shore up the country’s collapsing currency, which is officially valued at about 1,000 Zimbabwean dollars for $1 but can sell for over double that price on the black market. The alternative to the US dollar is a currency that is pegged to the euro.
1998–2007: As a result of poor administration of the country’s monetary policy, Zimbabwe’s annual inflation rate reached 47% in 1998. The severity of the hyperinflation continued to worsen throughout the following decade. The government’s measures to change the use of land were poorly handled, which stifled agricultural productivity. As a result, there was a shortage of food, which caused prices to skyrocket. The economic sanctions imposed by the United States, the European Union, and the International Monetary Fund caused the collapse of the banking system. Then, in order to fund operations in the Democratic Republic of the Congo, the government of Zimbabwe produced enormous numbers of new bills but failed to report them, which tipped the scales in their favor.
In 2008, individuals in Zimbabwe watched as their pensions and savings were wiped away by hyperinflation, which caused trust in the country’s currency to decline.
2009: Zimbabwe issues a banknote for 100 trillion Zimbabwe dollars, which has an equivalent value of approximately $33 on the underground market. Shortly after that, Zimbabwe was compelled to abandon its own currency and begin utilizing the dollar of the United States as its official tender. People will begin utilizing additional currencies, such as the Botswana pula (BWP), the Indian rupee (INR), the euro (EUR), and the South African rand (ZAR), after the multi-currency system is implemented. By the end of 2015, the demonetization of the regional currency will be finished.
In October 2019, the government will once again employ a Zimbabwean currency and will prohibit the use of any other currency for transactions within the country. Despite this, the black market continued to grow, and the changeover did not actually take place. The government eventually lifted the restriction on using dollars.
Zimbabwe will issue gold coins made of 22-carat gold in July 2022, with the intention of selling them to the general public in an effort to bring inflation under control.
At its height in November 2008, Zimbabwe’s monthly inflation rate reached 79,600,000,000%, which translates to almost 98% on a daily basis. This level of hyperinflation ranks as the second-greatest in recorded history. It was second only to Hungary in the aftermath of World War II, where prices quadrupled every 15 hours at one point as the government utilized inflation as a tax on its inhabitants to help pay for postwar reparations and to make payments to the Soviet army that was occupying the country, as well as to restore the country’s productive potential.
For more than 80 years, the United States dollar has been the dominant reserve currency worldwide. Because of this, it eventually became a staple in Zimbabwe, which was experiencing a crisis. On the other hand, a number of nations are working toward distancing themselves from the currency in order to cut their ties to the economic and financial system of the United States. Since the annexation of Crimea in 2014, which resulted in sanctions, Russia has been an advocate for de-dollarization. The pace of the attempt has picked up in light of the conflict in Ukraine. This year, however, there has been an increase in the volume as well as the breadth of calls for de-dollarization.
A unified currency has been on the table as a potential solution for reducing Brazil and Argentina’s dependency on the US dollar in commercial transactions. Both India and Malaysia have agreed to conduct their financial transactions using the Indian rupee. China and Brazil have come to an understanding of settling trades in the respective currencies of each country. There is some speculation that Saudi Arabia, Iran, and Venezuela will come to an agreement to do certain deals in the Chinese yuan as well.
However, overcoming the United States’ hegemonic position in the currency market won’t be simple. Given its structural strength and relative stability, the breadth and depth of dollar-denominated asset markets, and the persistent reliance of emerging nations on the US currency within their supply chains and asset bases, the US dollar is organically structured for modern trade. This is because of the breadth and depth of dollar-denominated asset markets. According to a piece of writing that economist Peter C. Earle wrote for the American Institute for Economic Research, a transition could take decades or even generations to occur.