Zimbabwe Central Bank Considered Cryptocurrency to Stabilize Depreciating Currency

The Reserve Bank of Zimbabwe (RBZ) revealed that it considered using cryptocurrency as one of four options to address the rapid depreciation of the Zimbabwe dollar. RBZ Governor John Mushayavanhu disclosed this information during a post-monetary policy review breakfast meeting organized by the Zimbabwe Independent in Bulawayo.

According to Mushayavanhu, the creation of the proposed new currency, Zimbabwe Gold (ZiG), was the culmination of extensive consultations conducted across various sectors. The RBZ engaged with experts from entities such as the World Bank, Zimbabwe International Trade Fair Company, and Zimbabwe Investment and Development Agency in developing the new monetary policy measures.

The acknowledgment of cryptocurrency as a potential approach reflects the RBZ's willingness to investigate innovative solutions amid economic challenges. It highlights the intricacy of managing currency fluctuations and the significance of strategic partnerships in navigating financial terrains.

Why this matters: The consideration of cryptocurrency by Zimbabwe's central bank emphasizes the growing recognition of digital currencies as potential instruments for stabilizing economies facing currency depreciation. It also underscores the difficulties faced by countries in managing their monetary policies in an increasingly digitalized global financial system.

However, some analysts believe the future of the ZiG currency may be unpredictable. They cite the current government's ties to the previous administration, ongoing corruption concerns, the currency's experimental nature, and competition from the widely used US dollar in Zimbabwe. There are apprehensions that the value of ZiG may deteriorate once the conversion period from the Zimbabwe dollar ends.

As of April 5, 2024, Zimbabwe had around $570 million worth of reserves to back the new ZiG currency, which is pegged to a basket of foreign currencies and precious metals, primarily gold. The RBZ is encouraged to continue building foreign currency and precious mineral reserves to intervene in the foreign exchange market and stabilize exchange rates. The central bank will manage foreign exchange liquidity through the use of proceeds from surrender requirements, where exporting companies must relinquish 25% of their proceeds.

Mushayavanhu stated, "The RBZ had a few choices, including staying with the Zimbabwe dollar (ZWL), removing zeros like Zambia did, or dollarizing. Ultimately, the RBZ chose to introduce ZiG as another instrument in the basket of currencies." The market, however, has given a <a href="https://www.newsday.co.zw/business/article/200025780/govt-considered-cryptocurrency-to-deal-with-currency-crisisas-mushayavanhu-reveals-zig-creation" target

Key Takeaways

• RBZ considered cryptocurrency as an option to address Zimbabwe's currency crisis.
• RBZ created a new currency, Zimbabwe Gold (ZiG), after consultations with experts.
• Cryptocurrency's recognition as a potential solution reflects the RBZ's innovative approach.
• Analysts express concerns about the future of ZiG due to various factors.
• RBZ has $570 million in reserves to back ZiG, which is pegged to foreign currencies and gold.