IMF Fears Zimbabwe’s Plan to Launch Gold-Backed Digital Asset Could Trigger Financial Instability

The IMF believes that Zimbabwe should consider ‘liberalising its foreign exchange market’ instead of launching this new digital asset.

Written by Radhika Parashar, Edited by Manas Mitul | Updated: 11 May 2023 18:45 IST

IMF Fears Zimbabwe’s Plan to Launch Gold-Backed Digital Asset Could Trigger Financial Instability

Photo Credit: Unsplash/ Josh Appel

As of now, Zimbabwe has not reacted to IMF’s suggestions or concerns

Highlights

The IMF believes digital assets can disrupt existing financial systems
Zimbabwe aims to protect its economy against heightened inflation
The IMF has previously criticised El Salvador for adopting Bitcoin

The growth in the usage of cryptocurrencies and similar digital assets has never really bagged any support from the International Monetary Fund (IMF) and the financial body's stance has remained unchanged over the years. In a fresh development, the IMF has warned Zimbabwe against introducing a gold-backed digital asset to stabilise its economy against the fluctuating US dollar. The IMF fears that this digital asset could hinder the existing economical system in the nation.

The IMF reportedly believes that Zimbabwe should consider ‘liberalising its foreign exchange market' instead of launching this new digital asset.

“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 reserve,” an anonymous source familiar with the matter was quoted by Bitcoin.com as saying.

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As per its plans, the southern African nation is looking to allow the exchange small denominations of the Zimbabwean dollar for the digital gold token to safeguard their investments against market fluctuations.

The move is intended to fight the inflation situation in Zimbabwe with the help of this planned stablecoin.

Authorities from the IMF have reached out to the regulators of Zimbabwe, suggesting avoiding the mingling of crypto-like digital assets in its financial system.

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As an alternate suggestion, the international lender has asked Zimbabwe to put in place strict monetary policies to keep its nationals safe against market upheaval.

As of now, Zimbabwe has not reacted to IMF's suggestions or concerns.

This, however, is not the first time that the IMF has voiced its issues with the growth of digital assets.

Earlier it had criticised the central American nation of El Salvador for integrating Bitcoin with its traditional banking system, reliant on the US dollar. In September 2021, El Salvador became the first nation in the world to legalise Bitcoin as a payment option alongside its fiat currency, the US dollar.

Later in 2022, the IMF got debt-ridden Argentina to sign a deal that ‘discourages' crypto use in return of financial aid.

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Further reading: Cryptocurrency, Zimbabwe, Stablecoin, IMF

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More