IMF Says Zimbabwe Gold-Backed Digital Currency a Potential Threat to Financial Stability

The Worldwide Financial Fund has urged Zimbabwean authorities to weigh the advantages versus dangers of issuing a gold-backed digital foreign money. As an alternative of utilizing gold-backed digital foreign money to restrict the demand for the buck, the worldwide lender mentioned financial authorities ought to think about liberalizing the overseas change market.

Dangers to Macroeconomic and Monetary Stability

The Worldwide Financial Fund (IMF) has referred to as on Zimbabwean financial authorities to fastidiously think about the advantages of issuing a gold-backed digital foreign money versus the potential dangers to the financial system. As an alternative of dashing to difficulty the gold tokens, the worldwide lender mentioned authorities ought to as an alternative think about liberalizing the nation’s overseas change market.

The remarks by the IMF got here simply days after the Reserve Financial institution of Zimbabwe (RBZ) started issuing the gold-backed digital foreign money. As beforehand reported by Bitcoin.com Information, gold-backed digital cash are an try by the RBZ to decelerate native demand for U.S. {dollars}.

Excessive demand for the buck versus its restricted provide on the formal market has fueled the native foreign money’s slide on the parallel market from simply over US$1:ZWL1000 at the beginning of 2023 to round US$1:ZWL2000 by the top of April. Up to now yr, the RBZ responded to the native foreign money’s depreciation by climbing the benchmark fee. Throughout the identical yr, the central financial institution unveiled bodily gold cash which it mentioned would act as a substitute retailer of worth.

Nevertheless, after the RBZ began circulating the gold-backed digital foreign money, a spokesperson for the IMF warned of a number of dangers that such a digital foreign money would convey.

“A cautious evaluation must be performed to make sure the advantages from this measure outweigh the prices and potential dangers together with, as an example, macroeconomic and monetary stability dangers, authorized and operational dangers, governance dangers, price of forgone FX reserve,” the unnamed spokesperson mentioned.

In addition to liberalizing the overseas change market, the IMF spokesperson reportedly informed Zimbabwean financial authorities to stay to different typical options that embody sustaining a decent financial coverage.

The warning by the IMF marks the second time the Bretton Woods establishment has chastised an African nation for adopting a non-conventional foreign money administration strategy. In 2022, the IMF warned of a danger to monetary stability after the Central African Republic adopted bitcoin. Comparable warnings have been issued to El Salvador after it turned the primary nation to declare bitcoin authorized tender.

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