Zimbabwe Can Benefit from Gold-Backed Digital Currency
The Reserve Bank of Zimbabwe will begin issuing digital tokens guaranteed by gold.
The measure is intended to stabilize the Zimbabwe dollar and provide a hedge against inflation in the face of high inflation. And while the tokens could technically be viewed as a form of central bank digital currency (CBDC), they are more appropriately viewed as digital gold. New tokens guaranteed by gold are being issued in a nation with a troublesome history of inflation.
Since 2008, when Zimbabwe experienced a severe hyperinflation crisis, the country has labored to reduce rates. In the previous year, annual inflation rarely fell below 90%. Moreover, the Zimbabwean dollar has declined significantly against major currencies.
In response to this inflationary climate, residents will be able to exchange Zimbabwe dollars for digital gold as a hedge against volatile exchange rates. The gold itself will be retained by the issuing authority.
Dr. Mangudya, governor of the Reserve Bank of Zimbabwe, told the newspaper that the central bank is also contemplating issuing more gold coinage. To combat inflation by removing Zimbabwe dollars from circulation using its gold reserves, the central bank will issue the precious metal in both physical and tokenized form.
Throughout the years, there have been numerous initiatives to tokenize physical gold assets. The RBZ can draw inspiration from existing cryptocurrencies such as Gold Coin (GLC) and Melt Gold by Algorand (MCAU). These tokens, issued by well-known crypto actors, provide an alternative method for investing in gold. And without the need for them to physically possess it.
In cases of gold-backed currency, blockchain technology providers frequently collaborate with precious metals trading and storage specialists. The precious metals refinery SEMPSA JP has partnered with Aurus.
In addition to delegating the responsibility for storage to professionals, tokenized gold facilitates the acquisition of lesser weights. Because no physical metal is required to be processed when digital assets are exchanged, gold-backed cryptocurrencies can reduce entry barriers to the asset class.