The International Monetary Fund has urged Zimbabwean authorities to weigh the advantages versus threats of publishing a gold-backed digital currency. Rather than using gold-backed digital currency to limit the demand for the greenback, the global lender spoke that monetary authorities should consider liberalizing the foreign exchange market.
Threats to Macroeconomic and Financial Stability
The International Monetary Fund (IMF) has called on Zimbabwean monetary authorities to carefully consider the advantages of publishing a gold-backed digital currency versus the potential threats to the economy. Rather than rushing to publish the gold tokens, the global lender spoke authorities should rather consider liberalizing the country’s foreign exchange market.
The remarks by the IMF neared just days after the Reserve Bank of Zimbabwe (RBZ) embarked on publishing the gold-backed digital currency. As preliminarily reported by News, gold-backed digital coins are an attempt by the RBZ to slow down local demand for U.S. dollars.
High demand for the greenback versus its limited supply on the formal market has fueled the local currency’s slide on the parallel market from just across US $1:ZWL1000 at the launch of 2023 to around US $1:ZWL2000 by the end of April. In the past year, the RBZ responded to the local currency’s depreciation by hiking the standard rate. During the equal year, the central bank unveiled physical gold coins which it spoke would act as an alternative store of worth.
Still, after the RBZ started circulating the gold-backed digital currency, a spokesperson for the IMF warned of several threats that such a digital currency would bring.
“ A careful assessment should be conducted to ensure the advantages from this measure outweigh the costs and potential threats including, for instance, macroeconomic and financial stability threats, legal and operational threats, governance threats, cost of forgone FX reserve, ” the unnamed spokesperson spoke.
Besides liberalizing the foreign exchange market, the IMF spokesperson reportedly reported Zimbabwean monetary authorities to stick to different conventional answers that include maintaining a tight monetary policy.
The warning by the IMF marks the alternate time the Bretton Woods institution has chastised an African country for adopting a non-conventional currency management approach. In 2022, the IMF warned of a threat to financial stability after the Central African Republic adopted Bitcoin. such warnings were published to El Salvador after it became the initial nation to declare Bitcoin legal tender.
(Terence Zimwara, Bitcoin.com, 2023)