IMF says Zimbabwe’s gold-backed digital tokens likely a bad idea

Leonard Sengere Avatar

I have to confess, I am not a fan of the International Monetary Fund (IMF) and the World Bank. It’s hard to be a fan as a Zimbabwean, I guess. However, they do hold sway over world proceedings and so we have to listen to what they have to say.

Right now Zimbabwe is the talk of town in the global village because of its gold-backed digital tokens that went on sale on Monday. So, some decided to ask the IMF what they thought about the development and this is what their spokesperson had to say,

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

I understand that there needed to be a careful assessment of the move and if I’m being honest, I don’t think the Zim government did that. I think they focused on what they hoped the tokens would achieve and ignored the rest.

That said, I don’t understand the risks that the IMF is talking about. They would have to expagorate. The cost of forgone forex reserves is the easiest to grasp with. Those reserves calm investors down as they can be used to influence monetary policy and so represent Zimbabwe’s ability to deal with shocks to the economy.

I would argue though that we are past the point of forex reserves calming international investors when it comes to Zimbabwe. Forex reserves signal that a country won’t default on its liabilities.

Well, Zimbabwe defaulted a long time ago and got cut off by the IMF and the World Bank. All to say, I understand why the need to hold massive foreign reserves would not be high up on Zimbabwe’s agenda. Hence why the cost of forgone FX reserves was ignored.

Conventional methods

Anyway, the IMF then made some more common-sense comments. They implored the Zimbabwe govt to use conventional means to address the country’s economic challenges. A gold-backed digital token really is something, we’re breaking new ground here and cementing our place in economics textbooks for decades to come.

Instead of resorting to the fancy, the IMF is saying there are conventional means to address some of our problems. They mentioned maintaining a tight monetary-policy stance and accelerating the liberalisation of the foreign-currency market by removing restrictions on the exchange rate at which banks, authorized dealers, and businesses transact.

Could it be argued though that Zimbabwe does not have conventional problems and so conventional means cannot be used to right the ship? I don’t know. Anyway…

Zimbabwe has been maintaining a somewhat tight monetary policy stance, we talked about some of those measures here: RBZ to tighten money supply. What does that mean and how are they trying to achieve it?

I guess there is always room to tighten it further. However, when it comes to the second point on liberalising the forex market, the Zimbabwe govt is not interested in the least bit. They want to control the forex exchange market and won’t allow the official exchange rate to deteriorate any further.

Of course, this is the source of most of our economic problems in this country. We’d rather have an embarrassing official exchange rate than hide our heads in the sand. The govt begs to disagree.

It is what it is

Listen, your head could explode from all this. If you want to get in on the gold token action, we talked about how you can go about that here: Digital gold tokens – here’s how you go about purchasing. Not all banks are ready.

We tried buying from one of the banks that said they were ready – FBC – and it turned out they were not. Said they had not received confirmation from Head Office that they could sell the tokens. They will call us back when they are ready. So, it’s pretty much chaos out there. We will update you when we break through.

17 comments

  1. Mudish

    Indeed, if you look at it from high level, academic perspective, Zim is an excellent petri dish that has been great for all sorts of observations. Small, full of fuel for the experiment and mostly sealed off from the greater global economy so whatever happens, no big deal. But to the culture living in that dish, it is the whole world! I’m not holding out hope for miracles, but I am hoping, at the minimum, an overall neutral outcome.

  2. M2

    A shortage of foreign currency by extension also means a shortage of gold and other exportable goods. Why not just sell the gold and keep enough foreign currency reserves to stabilize the ZWL? These digital gold tokens appear no different from the bond notes that were allegedly backed by a USD loan from Afro Exim Bank at 1:1. The gold backed tokens will fail the same way that the bonds notes failed – i.e. there will be an oversupply of the tokens totally unmatched by the gold reserves.

  3. M2

    For the digital gold tokens to be of real value, it has to be ultimately convertible into USD or other internationally recognizable currency. If I have x amount in gold tokens and I want to go shopping in South Africa or buy something online, what would be the process to convert the tokens to useable foreign currency? If the process will be overly complicated or inconvenient, e.g. requiring filling application forms and waiting – then people will continue to prefer converting their ZWL to USD on the parallel market

  4. Always off topic

    Going round and round in circles. And it seems that even the people on the ground donot see it, How many more decades of crisis after crisis will the ordinary Zimbo learn. There is nothing here it is the same old BS. There is one big caveat in all this, you have to wait a certain period before you can liquidate your egold, i donot know about you but that is a dead give away!!!!!

  5. The Last Don

    Our government always likes to shoot themselves in the foot. How do they expect to break from tradition and succeed especially seeing that we are an importer of everything except for the air which just blows by itself? Big economies (including the Russians & Chinese) listen to the Bretton Woods Institutions so who are we to put sticks in our ears when they talk?

  6. Nostalgia

    Does anyone remember the 80s and 90s even though forex was scarce you had an annual allowance for holiday etc and you could go to the bank and claim yours. The holiday allowance wasn’t much but the Zimbabwe dollar was quite stable. The black market for forex hardly existed. The start of the current mayhem was the moneys for ex-combatants when the government started printing money. We know where the problem comes from and the government continues to conduct witch-hunts to try and find some scapegoats. This misgovernment must stop if the dollar has stabilize again.

    1. What

      Did everyone recently a new group liberators are due for some government cash-?

    2. Me

      You nailed it, why did we department from that system. The first time I travelled I went to bank and they looked at my passport an they asked me to pay for my allocation.
      ,

    3. Isaac

      I’m purely ama2K, I have no idea how the 90s / 80s were. Maybe we should focus on time travel tech 😂

  7. MaOne

    So, we have a digital gold-backed token that is applied by filling in a hard copy paper ?

    1. Anonymous

      Klaar

  8. Imi Vanhu Musadaro

    IMF and government are both untrustworthy. IMFs Economic Structural Adjustment Programme got the ball rolling in regards to spreading poverty and misery. Since then, the ball has just been picking up speed.

  9. Chasura

    Most countries want to leave the US Dollar system and move back to the gold standard and this is getting the US to panick and for countries like Zimbabwe to start that race they are feeling like they are losing the war on currency war.
    BRICS countries are creating their own currency and it will be gold backed and that will hurt the American dollar as it was used to be the main trading currency of the world. Even Saudi Arabia wants out if the Petrol Dollar deal, so they are not warning us they want us to remain in that trap where they control or finances as Africans and make us power and dependent on them and yet we have the resources and they do

  10. Skinny pig

    Guys did anyone notice Econet data was working last night without recharging

    1. Isaac

      Yeah, I think the engineers were busy debugging network connectivity issues. They should do that more often.

  11. Isaac

    I told you, the drums beat differently but the message is the same.

  12. Dee

    The comment by IMF was very generic. Can someone give me an example where IMF and the Worldbank have intervened successfully in the developing countries. Kindly provide the scenario before the intervention and after the intervention as well as the prescription given to result in the success. I feel these guys are full of hot air and we overate them. Any prescription is effective for the scenario it was developed. Unconventional problems can not be solved by conventional solution…that’s why they are unconventional in the 1st place. Zimbabwe is facing unconventional challenges and we are writing our own piece of economic history. I stand to be proved otherwise.

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