IMF Advises Zimbabwe to Assess Risks before Issuing Gold-Backed Digital Currency

IMF Advises Zimbabwe to Assess Risks before Issuing Gold-Backed Digital Currency

Crypto News: IMF Advises Zimbabwe to Assess Risks before Issuing Gold-Backed Digital Currency

The International Monetary Fund (IMF) has advised Zimbabwean authorities to carefully evaluate the potential benefits and risks associated with the issuance of a gold-backed digital currency. Instead of hastily implementing the digital currency to reduce dependence on the US dollar, the global lender suggests that monetary authorities consider liberalizing the foreign exchange market.

The IMF’s recommendation comes shortly after the Reserve Bank of Zimbabwe (RBZ) initiated the issuance of a gold-backed digital currency. The RBZ’s intention behind introducing these digital coins, as previously reported by News, is to curb the local demand for US dollars.

The growing demand for the greenback, coupled with its limited availability on the formal market, has contributed to a significant decline in the value of the local currency on the parallel market.

The exchange rate has plummeted from approximately US$1 to ZWL1000 at the beginning of 2023 to around US$1 to ZWL2000 by the end of April. In response to the depreciation, the RBZ has raised the benchmark rate and unveiled physical gold coins as an alternative store of value.

However, following the launch of the gold-backed digital currency, an IMF spokesperson expressed concerns about several risks associated with such a digital asset. The spokesperson emphasized the need for a thorough assessment to ensure that the benefits outweigh potential costs and risks, including those related to macroeconomic and financial stability, legal and operational aspects, governance, and the cost of depleting foreign exchange reserves.

In addition to urging the evaluation of risks, the IMF spokesperson recommended that Zimbabwean monetary authorities explore other conventional solutions, such as maintaining a tight monetary policy and pursuing the liberalization of the foreign exchange market.

This is not the first time the IMF has cautioned an African country for adopting unconventional currency management approaches. In 2022, the IMF expressed concerns about potential risks to financial stability when the Central African Republic embraced bitcoin. Similar warnings were issued to El Salvador after it became the first nation to adopt bitcoin as legal tender.

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