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Golden Sibanda
THE Reserve Bank of Zimbabwe (RBZ) intends to introduce, tentatively, its planned gold-backed digital tokens in the first week of next month to provide a further investment alternative that would also help to suck excess liquidity from the market and stabilise the Zimbabwe dollar.
This comes as the domestic unit of exchange has been facing attacks emanating from what the central bank terms ‘unlimited demand’ for the greenback by holders of huge sums of the local currency.
The depreciation in the local currency has lately driven renewed price increases that have resulted in an uptick in month-on-month inflation, although the rate of price increases has down-trended on an annualised basis.
Zimbabwe’s annual inflation declined by 12,4 percentage points to 75,2 percent in April, 2023, reflecting the positive impact of the tight monetary policy stance authorities adopted last year to keep a firm lid on price increases.
The RBZ said its planned gold-backed digital tokens early next month would act as a store of value and medium of exchange, which should further anchor the value of the Zimbabwe dollar and inflation.
Already, the central bank has issued gold coins, for which there has been very high demand and the central bank has been able to keep pace. On that basis, the bank believes there will be a scramble for gold-backed digital tokens, as a store of value.
Inflation denotes the rate of change in prices of goods and services measured over a given period, usually a month or a year. The latest statistics from Zimbabwe National Statistics Agency (ZimStat) show annual inflation retreated while monthly inflation inched higher.
“The year-on-year inflation rate (Annual percentage change) for the month of April 2023, as measured by the all-items Consumer Price Index (CPI) was 75,2 percent,” ZimStat said. At 75,2 percent, Zimbabwe’s annual consumer price inflation eased again to a ten-month low. On a monthly basis, consumer prices surged by 2,4 percent in April, the most in six months, after decreasing by 0,1 percent in the prior month.
The marginal monthly increase reflects the effect of Zimbabwe dollar-priced products in the consumer price basket, which have recently registered marked increases on account of US dollar price indexing.
The Zimbabwe dollar has weakened considerably against the greenback, both on the official interbank and parallel markets, but authorities expect it to hold firm as the tobacco-selling season progresses and boosts US dollar liquidity.
The month-on-month food and non-alcoholic beverages inflation rate was minus 1,2 percent in April 2023, shedding 1,5 percentage points on the March 2023 rate of 0,3 percent.
The month-on-month non-food inflation rate was 5,1 percent, gaining 5,1 percentage points on the March 2023 rate.
Zimbabwe’s annual inflation climbed to a two-year high of 284,94 percent last year while the monthly rate peaked at 30,2 before a coterie of fiscal and monetary policy interventions set it on a sustained decline trajectory.
The measures included a sharp increase in the bank policy rate, which caps commercial lending rates, from 80 to 200 percent (now 150 percent) to curb speculative borrowing, and value-for-money audits that curtailed excessive invoicing on public contracts.
Additionally, the central bank minted and issued large and small denomination physical gold coins as part of a slew of policy measures by authorities to provide alternative investment options, hedge value against inflation as well as stabilise the exchange rate and inflation.
Speaking in an interview yesterday, RBZ Governor Dr John Mangudya said the annual inflation decline augured well for plans by monetary authorities to introduce new measures to stabilise the local currency.
Dr Mangudya said the latest inflation statistics showed inflation was by and large headed in a positive direction, given that the weighted inflation rate had retreated and in light of the fact the US dollar prices accounted for the largest weight.
“Inflation, which has also declined in US dollar terms, is expected to further decline, so the outlook is very good. Going forward, inflation will continue to decline due to stabilising local currency, as the RBZ expects to introduce gold-backed digital tokens.
“The god-backed digital token will act as a store of value, and secondly they can be used for transactions. By doing so, this will mop up all the excess liquidity in the market, and stabilise the currency,” Dr Mangudya said.
Tentatively, the gold-backed digital gold coins will be introduced in the first week of May, 2023. Prior to their introduction, Dr Mangudya said, the central bank will publish the terms and conditions of the gold-backed digital tokens.
The tokens will be a form of electronic money backed by the country’s gold reserves, which will be held by the central bank.
The RBZ wants people holding Zim dollars to be able to exchange their money for the gold-backed token to help them hedge against the volatility of the local currency.
While physical currency is still widely used all around the world, people in some countries have been using it a lot less lately, especially during the Covid-19 pandemic, with its cash shortages and hygiene concerns.
As people shift away from cash, many are increasingly turning to digital financial transactions.
Globally, banks and financial institutions process far more transactions digitally than they do in physical branches.
A variety of recent digital disruptions, including the emergence of cryptocurrencies and blockchain technology, have made waves in the financial services sector. Digital currencies are part of that story, and central banks have started to take note.
Central bank digital currencies (CBDCs) are the digital form of a government-issued currency that isn’t pegged to a physical commodity.
They are issued by central banks, whose role is to support financial services for a nation’s government and its commercial-banking system, set monetary policy, and issue currency.
Online Reporter