The Central Bank of Zimbabwe has introduced a digital currency backed by gold as a measure to combat the country’s inflationary crisis. The new digital tokens, which can be redeemed at world prices in 180 days, aim to expand the value-saving tools available in the economy. However, analysts argue that the move is a distraction from the root causes of the currency problems. Zimbabwe’s economic woes have caused the value of its currency to plummet, decreasing by over half since the end of last year. The launch of the digital currency also comes amid a trend among countries to launch their own central bank digital currencies (CBDCs).
Experts Weigh in on the Future of CBDCs
In Europe, economist Ignazio Angeloni has recommended that the European Central Bank should continue research on CBDCs and refrain from launching virtual currencies until new factors support the decision. Angeloni argued that the risks associated with CBDCs outweigh the arguments in favor of introducing a new generation of currency. In Nigeria, the popularity of digital currency has grown amid a cash shortage. The cost of eNaira transactions in the country increased by 63% in March. Godwin Emefiele, the head of Nigeria’s Central Bank, said that eNaira has become the preferred channel for electronic payments to expand access to financial services and social activities.
Mixed Reactions to Zimbabwe’s Digital Currency
While the Zimbabwean government has hailed the introduction of its digital currency as a way to tackle its economic crisis, some analysts have expressed skepticism. Economist Tinashe Murapata has called the issue of digital currency a secondary event, arguing that it has nothing to do with what is happening on the ground. Murapata also noted that Zimbabweans are increasingly abandoning the local currency, a trend that the country’s central bank should worry about. The tokens are backed by gold in the bank’s reserves and aim to provide a new tool for value preservation in the economy.
Implications of the Launch of Zimbabwe’s Digital Currency
The introduction of Zimbabwe’s digital currency comes at a time when many countries are exploring the launch of their own CBDCs. While the effectiveness of these currencies is still uncertain, their potential to improve financial inclusion and reduce the risks associated with cash-based transactions cannot be ignored. However, there are also concerns about the risks and challenges associated with CBDCs, such as privacy concerns and the potential for financial instability. As countries continue to explore the use of digital currencies, it remains to be seen how successful they will be in addressing their economic challenges.