Zimbabwe turns to gold-backed cryptocurrency

Gold has been traditionally regarded as an eternal measure of value since times immemorial. Gold still remains an acceptable yardstick of wealth that layers any world’s powerhouse foundations, leverage that caused wars and changed the global political landscape throughout the ages. Investors have been clamouring for the safe investment havens post-Covid and amid geopolitical tensions, it looks like the U.S dollar has been the king of the global foreign exchange markets. But gold is actually outperforming against the greenback.

On the other hand, the market is currently experiencing an increase in demand for physical gold fueled by sourcing supply chain issues. As a result, the precious metal has increased in price per ounce. For most investors, bitcoin and other cryptocurrencies have become the safe-haven-of-choice. Despite being highly volatile, cryptocurrencies are also highly liquid, easy to access, and easy to store. However, other investors prefer something a bit more traditional–namely, gold. In its unavailability, it seems like there is only one alternative. Gold-backed cryptocurrencies.

The increased interest in these gold-backed cryptocurrencies is evident in the fact that the trade volumes of most such assets have also increased in recent days, according to market data from CoinMarketCap. Holders of gold-backed cryptocurrency tokens enjoy being able to own gold while avoiding the drawbacks associated with physical gold, including storage costs and limited accessibility.

Beginning on May 8th, 2023, Zimbabwe’s central bank, RBZ, will commence the sale of gold-backed digital tokens. It is crucial to understand the following aspects of the gold digital tokens.

About Zimbabwe’s gold-backed digital tokens

The digital gold tokens will be backed completely by physical gold held by the central bank.

• Purchasing the tokens will serve as a safeguard against adverse currency depreciation and inflation.
• The digital gold-backed tokens will complement the existing physical gold coins and other open market operations that the central bank uses to regulate liquidity and act as alternative investment instruments.
  • The gold tokens offer an alternative instrument for preserving the value of the Zimbabwean currency without depending on the US dollar on the parallel market.
• The coins will be issued for investment purposes with a 180-day vesting period, and redemption will be in the same manner.
  • The tokens will be available for sale through banks, in both foreign currency and the Zimbabwe dollar.
• Banks will create dedicated accounts for the storage of the tokens, either in the form of e-gold wallets or e-gold cards.
• Holders of physical gold coins will be able to exchange or convert them into digital gold tokens through the banking system.
• The benefit of gold tokens over coins is that they are divisible, similar to one’s funds in a bank account.
• Digital tokens stored in e-gold wallets or e-gold cards will be tradable and able to facilitate person-to-person and person-to-business transactions and settlements.
  • The pricing of the digital tokens in foreign currency shall remain informed by the international gold price as determined by the London Bullion Market Association (LBMA), in the same manner as the pricing model of the physical gold coins.
  • Payment for the gold-backed digital tokens or physical gold coins in Zimbabwe dollar shall remain at the current 20 percent margin above the willing-buyer willing-seller interbank midrate.
  • The digital tokens will improve public access and usage of value-preserving instruments in the economy made available by the government.

Blockchain-based infrastructure is becoming more and more crucial to a new generation of financial services that require stable assets as collateral and transfer of value. Besides fiat-backed stablecoins and multi-asset projects, gold seems a clear candidate. According to the government of Zimbabwe, gold-backed tokens are a step in the right direction, allowing more investors to participate in this investment instrument and bringing financial inclusion to low-income earners.