Zimbabwe has received a total of 241 applications valued at about ZW$22 billion for the sale of its gold-backed digital tokens, data from the central bank show.

The sum represents a total value of about US$11.7 million, based on rates from ZimRates.com, a platform that tracks both official and unofficial exchange rates. That amount was collected through tworounds of token issuance which saw Zimbabwe use more than 210 kilograms of gold reserves to back.

Zimbabwe launched its gold-backed digital tokens earlier this month in an effort to stabilize its collapsing currency and provide the public with an alternative store of value to the US dollar.

The Reserve Bank of Zimbabwe said in a statement that the tokens would “expand the value-preserving instruments available in the economy” and “enhance divisibility of the investment instruments and widen their access and usage by the public” – statements that are in reference to the sharp drop the Zimbabwe dollar has witnessed these past years.

Zimbabwe’s national currency has been depreciating rapidly following yearslong of economic woes marked by price and exchange rate instability, high inflation and unsustainable debt levels.

The Zimbabwe dollar has declined 65% so far this year against the US dollar and is now officially trading at ZW$1,888/USD, compared with ZW$660/USD at the start of the year, according to a Bloomberg report. The currency is much weaker on the black market where it trades at about ZW$3,250/USD, data from ZimRates.com show.

Zimbabwe’s gold-backed digital tokens are being sold through banks, which are responsible for providing consumers with specific accounts for the holding of the tokens. These tokens can be purchases in both local and foreign currency at a 20% margin above the interbank mid-rate. Two rounds of sale have been held so far and a third round is scheduled on May 26.

Initially, Zimbabwe’s new gold-backed digital tokens will be meant to be used for investment purposes with a vesting period of 180 days, the central bank said. However, during Phase 2 of the project, the gold-backed digital tokens held in either e-gold wallets or e-gold cards will become tradable and capable of facilitating person-to-person (P2P) and person-to-business (P2B) transactions and settlements. This implies that in the long run, the Reserve Bank of Zimbabwe aspires for the digital token to become both a legitimate store of value and a means of payment.

The rise of digital currencies

Zimbabwe follows the leads of jurisdictions including the Bahamas, Nigeria and Cambodia, which have already launched digital currencies backed by their central banks. The Bahamas launched its central bank digital currency (CBDC) in 2020 to bring more “inclusive access to regulated payments and other financial services”; Cambodia introduced its blockchain-based payment platform Bakong that same year as a critical step in modernizing its payment system and de-dollarizing its economy; and Nigeria launched its eNaira CBDC in 2021 to help improve financial inclusion, facilitate remittances and reduce informality.

Countries like China are still running trial projects, while others such as the UK, the US and the European Union are considering similar moves.

At present, more than 80 countries, representing over 90% of global gross domestic product (GDP), are exploring CBDCs, according to a 2021 study conducted by the Bank for International Settlements (BIS).

High interest in CBDCs comes at a time when the use of cash is declining. In Europe, for example, usage of cash has dropped by roughly one-third between 2014 and 2021, plummeting to as low as 3% in of overall payment transactions in Norway, according to McKinsey.

At the same time, consumers are increasingly turning to privately issued digital assets, signaling potential competition with central banks in their role as the sole provider of monetary value in sovereign economies. In the UK, for instance, 10% of the adult population reported holding or having held a crypto asset in 2021. In addition, a consumer study conducted by McKinsey found that 22% of respondents in India, 20% in Brazil and 14% in the US held digital assets as part of their financial portfolios in 2022.

But despite the perceived urgency to response to changing market dynamics and evolving consumer preferences, CBDCs do introduce risks and challenges that must be addressed, experts and industry observers have warned. These risks include their potential impact on citizen privacy and freedom as well as risks relating to financial instability and cyberattacks.

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