The ManicaPost
Tapiwanashe Mangwiro
Senior Business Reporter
WITH central banks increasingly exploring central bank digital currencies, the Reserve Bank of Zimbabwe (RBZ) will begin selling gold-backed digital tokens on May 8.
RBZ Governor, Dr John Mangudya said the gold-backed tokens will be fully backed by physical gold held by the central bank.
“As previously advised, the issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public,” he said.
Buying the tokens will protect buyers from adverse currency depreciation and inflation.
Gold is a stable asset as shown by the gold coins which were introduced at US$1,823 but are now valued above US$2,000 per coin.
The gold-backed digital tokens are meant to complement the existing physical gold coins and other open market operations that the central bank uses to control liquidity and as alternative investment instruments.
Instead of chasing the US dollar on the parallel market, those looking to preserve value now have an alternative instrument that equally stores value.
Like the physical gold coins issued in 2022, the gold-backed digital coins will be issued for investment purposes with a vesting period of 180 days and redeemable in the same way.
The tokens will also be available for sale, through banks, in both foreign currency and the Zimbabwe dollar.
However, unlike the gold coins, Dr Mangudya said banks will create dedicated or specific accounts for the holding of the gold-backed digital tokens (e-gold wallets or e-gold cards).
Holders of physical gold coins, at their discretion, will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens.
The advantage of gold tokens over coins is that they are divisible just like one’s money in a bank account.
According to the RBZ Governor, the gold-backed digital tokens held in either e-gold wallets or e-gold cards will be tradable and capable of facilitating Person-to-Person and Person-to Business transactions and settlements.
“It, therefore, means that the gold-backed digital tokens would be used both as a means of payment and a store of value,” Dr Mangudya added.
In the same manner as the pricing model of the physical gold coins, the pricing of the gold-backed digital tokens in foreign currency shall remain informed or guided by the international gold price as determined by the London Bullion Market Association (LBMA) PM fix.
“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 RBZ said in a statement.
Through its Twitter handle, the Ministry of Finance and Economic Development said: “The digital tokens will improve public access and usage of value-preserving instruments in the economy being availed by the Government.”
Trigrams Investments analyst Mr Walter Mandeya said the introduction of the gold backed tokens is a step in the right direction.
“We believe this development is a step in the right direction as it will allow more investors to participate in this investment class.
“However, the technology backing the tokens and the mechanics of using it really need to be understood by the market for these digital e-gold tokens to gain wide acceptance for both store of value and settlement purposes,” Mr Mandeya said.
To instil confidence in the market, Mr Mandeya said there is a need to have specific legislation through an Act of Parliament related to the gold tokens.
“This will ensure that the Mosi-oa-Tunya Gold Coins are able to stand shoulder to shoulder with the other sovereign coins found around the world.”
The digital tokens are intended to supplement actual currencies and reach more people, particularly low-income people who cannot purchase gold coins.
Many people cannot afford the smallest unit of gold coin, which costs roughly USD200.
Both the token and the gold coin, according to the central bank, will reduce demand for foreign currency and give Zimbabweans a more stable store of value.
When compared to gold coins, gold-backed tokens are similar in terms of backing and value.
They are, however, more accessible.
They are also less expensive and more easily divided than gold coins.
The Bahamas, Jamaica and Nigeria have already launched digital currencies backed by their central banks, with several other countries, including China, running trial projects.
The United Kingdom is moving closer to it. The United States is also considering similar moves.
In Nigeria, the launch of the Eko gold coin by the Lagos Commodities and Futures Exchange (LCFE), which is licensed by the Securities and Exchange Commission (SEC), is aimed at trading gold with the London Bullion Market Association and targeting globally acceptable pricing and quality. — The Herald.
