On April 23, the Reserve Bank of Zimbabwe (RBZ) said the gold-backed digital asset will be used as legal tender in the African nation.
The move is part of an effort to stabilize the country’s economy and local currency’s continued depreciation against the U.S. dollar.
According to reports in local media, the move will allow those holding small amounts of Zimbabwean dollars to exchange their money for digital tokens. This will help them store value and hedge against currency volatility.
RBZ Governor Dr. John Mangudya said the current exchange rate volatility was caused by “expectations of increased foreign currency supply.”
This is due to the start of the tobacco season when farmers receive receiving payments in USD.
Distancing From The Dollar
It is not the first time Zimbabwe has turned to gold to address currency volatility issues. Last year, gold coins were introduced to stabilize the local currency. It should officially trade at around $Z1,000 to the dollar but often changes hands for as much as $Z1,750 on the streets.
Zimbabwe abandoned its currency in 2009, replacing it mainly with the US dollar. This followed a period of extreme hyperinflation rendering the local money worthless. In 2019, it reintroduced the Zimbabwe dollar to revive the local economy, but volatility ensued again. It has not considered adopting Bitcoin as a legal tender but has mulled a CBDC (central bank digital currency).
Details on the technical aspects of the blockchain of the new digital currency were not provided.
Gold is a relatively stable commodity when compared to currencies. Gold prices have been increasing this year as another impending U.S. banking crisis has resulted in a flight to store of value assets.
Gold’s Performance YTD
Since the beginning of the year, gold prices have increased by 8.25%. Furthermore, they hit an all-time high of $2,040 USD/oz on April 13, according to Gold Price. However, the yellow metal has retreated since and is currently around $1,980/oz.
Comparatively, Bitcoin prices have surged this year, gaining around 70% since January 1.