According to local media reports, the Reserve Bank of Zimbabwe is working to launch a gold-backed digital currency. It also stated that technically the tokens could be considered a form of central bank digital currency (CBDC), but they are better thought of as digital gold.
Notably, the new gold-backed tokens are going to be issued in Zimbabwe, a country that has an evident troublesome history with inflation. Sources reveal that ever since Zimbabwe suffered from a major crisis of hyperinflation in 2008, the country has struggled to bring rates down.
In the past year, annual inflation has rarely dipped below 90% and the Zimbabwe dollar has fallen sharply against major currencies. Facing such an inflationary environment, residents in the country will be able to trade Zimbabwe dollars for digital gold as a way to hedge against volatile exchange rates. The gold itself will remain in the custody of the issuing authority.
Dr. Mangudya, governor of Zimbabwe’s central bank, briefed the media that the RBZ is also considering issuing more physical gold coins. In a bid to tame inflation by using its gold reserves to draw Zimbabwe dollars out of circulation, the central bank will issue the precious metal in both physical and tokenized form. He said:
What we have noticed is that demand for foreign currency, apart from being driven by the need to import goods and services in Zimbabwe, is also viewed as a store of value.
Of course, there have been many previous attempts to tokenize physical gold assets over the years. For inspiration, the RBZ can look to existing cryptocurrencies like Gold Coin (GLC) and Meld Gold by Algorand (MCAU).
Notably, these tokens are minted by well-known players in the crypto space and offer an alternative way for people to invest in gold. Additionally, the advantage here is that people are not required to physically hold it themselves.
In the context of gold-backed currency, blockchain technology providers often partner with specialists in precious metals trading and safekeeping. For example, the precious metals refinery SEMPSA JP has partnered with Aurus, and through the collaboration, the company offers gold and silver-backed tokens to bullion dealers.
Additionally, tokenized gold also allows people to purchase smaller weights easily because no physical metal has to be processed when digital assets exchange hands. Hence, in the long run, gold-backed crypto can lower barriers to entry to the investment class.
In recent times, masses have looked up to digital currencies to use them as hedge against inflation. As the economy of Argentina went through a sensitive phase, Argentines purchased between two and three times the number of stablecoins they do on a normal weekend.
Sources confirmed that consumers were hoping to safeguard their positions against a potential devaluation of the Argentine peso (ARS), whose buying power has decreased over the previous year as current global inflation hits the country even harder.
Digital assets backed by gold are gaining popularity in recent times. A few days ago, lawmakers in Texas proposed their desire to adopt a digital currency that could be exchanged for gold and cash. Senate Bill 2334, introduced by Senator Bryan Hughes, and House Bill 4903, introduced by Representative Mark Dorazio, collectively represent the first proposal for a state currency not backed by the dollar but by gold.
However, while the interest in gold-backed digital assets has risen in recent times, some states in the US like Miami and New York tried the idea almost two years ago. In August 2021, lawmakers proposed MiamiCoin (MIA), an alternative cryptocurrency that the city would store in a wallet and allow others to purchase.