by Myra P. Saefong, Market Watch:
Zimbabwe is looking to gold to “expand value-preserving instruments,” launching a gold-backed digital currency last week as the nation suffers from hyperinflation and its currency continues to diminish in value.
The move is an “interesting experiment to see if locals will warm up to a more stable currency and trust the nation’s central bank in its endeavors,” Peter Spina, president of GoldSeek.com, told MarketWatch.
The Reserve Bank of Zimbabwe said it was issuing the gold-backed digital tokens in a move to “expand value-preserving instruments” available in the nation’s economy, as well as “enhance the divisibility of the investment instruments and widen their access and usage by the public.”
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“A gold-backed currency, whether digital or not, is something that was once thought to be out of the question,” said Brien Lundin, editor of Gold Newsletter. “But as the fiat money experiment, which has essentially been in place since 1971, has progressed along the predictable path, the idea of backing currencies with gold will increasingly be discussed.”
The offering
The tokens are meant for investment purposes, with a vesting period of 180 days — available for sale at banks for purchase with local or foreign currency and redeemable in the same way as existing physical gold coin.
Reserve Bank of Zimbabwe Gov. John Mangudya said the digital tokens would be fully backed by physical gold held by the bank, according to an April 28 Associated Press report. He also said the tokens could be used as a way for people to save money or conduct “person-to person and person-to-business transactions and settlements.”
News reports, including one from Business Insider Africa, said the first sale of the digital currency was backed by nearly 140 kilograms, or roughly 4,938 ounces, of gold reserves. On Friday, the June gold futures contract GC00, -0.07% GCM23, -0.07% settled at $2,019.80 an ounce on Comex. On Thursday of last week, futures prices settled at $2,055.70, the second-highest finish on record for a most-active contract.
The 140 kilograms of gold would be valued at around $9 million to $10 million, said Spina. That’s “peanuts in the grand scheme of things.”
Attempt to gain trust
The move serves as a reminder of a time when some currencies were backed by a fixed quantity of gold — a monetary system known as the gold standard.
However, Steve H. Hanke, a professor of applied economics at The Johns Hopkins University, told MarketWatch the “so-called gold-backed digital currency is yet another scam being offered up by the Reserve Bank of Zimbabwe and the local mafia that flies under the flag of ZANU-PF,” the nation’s dominant political party.
