The International Monetary Fund (IMF) has expressed concern over the potential implications of Zimbabwe's gold-backed digital currency, urging the country's central bank to weigh the potential benefits of this measure against potential risks that could arise. The warning comes as the Reserve Bank of Zimbabwe (RBZ) began circulating the gold-backed tokens - an attempt by the RBZ to slow down local demand for U.S. dollars - hoping to ease the local currency's slide.

High demand for the greenback versus its limited supply on the formal market has seen the Zimbabwean currency plummet from just over US$1:ZWL1000 at the start of 2023 to around US$1:ZWL2000 by the end of April. In response, the RBZ raised the benchmark rate and unveiled physical gold coins as an alternative store of value.

Nonetheless, an IMF spokesperson warned that issuing a gold-backed digital currency could lead to a number of risks, including macroeconomic and financial stability risks. They also pointed out that maintains a tight monetary policy is a more conventional solution than circulating gold-backed units.

This is not the first time the IMF warns an African nation against adopting a non-conventional solution. In 2022, the global lender cautioned the Central African Republic against the use of Bitcoin and similar warnings were issued to El Salvador when they declared the cryptocurrency a legal tender.

It is clear that while the country's authorities hope that a gold-backed digital currency will curb the demand for the greenback, these measures bring risks that could potentially destabilize the economy. This is why the IMF insists that monetary authorities should carefully assess the benefits versus risks before issuing the digital coins in order to protect the financial stability of the nation.



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