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IMF engages Zim on digital currency

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The International Monetary Fund (IMF) said it would engage authorities after Zimbabwe announced plans to introduce a gold-backed digital currency.

Central bank governor John Mangudya told The Sunday Mail that the introduction of digital gold tokens would ensure those with low amounts purchase and use it as a store of value.

This comes at a time the demand for the dollar has been increasing leading to high premiums on the parallel market with a dollar fetching ZWL$2,000 from about ZWL$1,600.

An IMF spokesperson told Business Times: “Since the gold backed digital currency is a new instrument recently adopted by Zimbabwe, the IMF staff will need to discuss it with the authorities.”

Central banks are in favour of digital currencies they issue to avoid systemic risk caused by crypto currencies that provide private money and are not regulated by monetary authorities.

Central banks have been pushing for central bank digital currency, an electronic form of central bank money that citizens can utilise to make digital payments and store value.

“In the context of Zimbabwe, the use of digital money has been done by companies and the central bank has been having the burden of cracking down on them with penalties owing to non-compliance.

“Having a CBDC might be advantageous to the Government because it is a digital currency within their control and the profits realised can be used for the good of the public,” lawyers Mawere Sibanda said in its analysis of digital currency.

The proposed introduction of gold tokens comes after the central bank last year introduced gold coins to mop excess local currency balances blamed for fuelling the rout of the local currency.

As at March 10, 2023, a cumulative total of 31,866 gold coins had been sold in different denominations, mopping up more than ZWL$25.8bn, according to the bank’s Monetary Policy Committee.

The IMF has recommended that Zimbabwe introduce interest-bearing assets to mop excess liquidity and wind down the use of gold coins to “sustainably anchor economic growth”.

Mangudya said early this year that the use of gold coins as an open market instrument for managing liquidity would continue as part of the central bank’s sterilisation interventions to achieve a stable exchange rate.

An IMF spokesperson maintained the Fund’s stance on gold coins.

As per the Funds’ Press Release “IMF Staff Concludes Article IV Consultation Mission to Zimbabwe” of December 15, 2022, Fund staff recommendation on monetary policy relates to “restoring the effectiveness of monetary policy, including through the use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins,” the spokesperson said.

The IMF is billed to support Zimbabwe on economic reforms to accompany the country’s arrears clearance and debt resolution framework.

The IMF spokesperson said there are discussions yet on a supervised economic reform plan, the staff monitored programme.

“Authorities have indicated an SMP possibly later this year,” the spokesman said.

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