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IMF Advised Zimbabwe Against Adopting Gold-backed Digital Currency For Economic Stability

IMF Advised Zimbabwe Against Adopting Gold-backed Digital Currency For Economic Stability

The International Monetary Fund (IMF) advised Zimbabwe not to adopt a gold-backed digital currency to address macroeconomic issues such as volatility in the local currency.

Instead, they recommended that Zimbabwe liberalize its foreign exchange market. However, the country’s central bank began selling digital tokens on Monday to reduce demand for US dollars, currently the preferred currency for transactions. The tokens are available for purchase by individuals for a minimum price of $10 and by corporations and other entities for a minimum price of $5 000 and will eventually be used for transactions.

An IMF spokesperson said Tuesday in an emailed response to questions by Daily Maverick

A careful assessment should be conducted to ensure the benefits from this measure outweigh the costs and potential risks including, for instance, macroeconomic and financial stability risks, legal and operational risks, governance risks, cost of forgone FX reserves.

The International Monetary Fund advised Zimbabwe to use conventional measures like maintaining a tight monetary policy and accelerating the liberalization of the foreign currency market to address economic challenges. The Zimbabwean dollar has depreciated 40% against the US dollar this year.

The effectiveness of conventional measures in addressing economic challenges in Zimbabwe has been mixed. While maintaining a tight monetary policy and accelerating foreign currency market liberalization can help address macroeconomic issues like currency volatility, the country has struggled with economic instability, high inflation, and a shortage of foreign currency for years.

Zimbabwe has implemented several economic reforms in recent years, including currency reforms, but progress has been slow, and the country continues to face significant economic challenges.

Some factors contributing to Zimbabwe’s economic instability include political instability, corruption, poor governance, land reform policies, and economic sanctions. 

International Organizations’ Role in Zimbabwe’s economic recovery:

The International Monetary Fund (IMF) has provided financial support to Zimbabwe through various programs, including the Staff Monitored Program (SMP) and the Extended Fund Facility (EFF). The World Bank has also provided Zimbabwe with technical assistance and policy advice through various programs, including the Economic Reform and Competitiveness Project. Additionally, regional organizations like the African Development Bank (AfDB) have provided financial and technical assistance to support Zimbabwe’s economic recovery efforts. However, the effectiveness of these efforts has been limited by political and economic challenges within the country.

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