$14bn gold digital tokens bought so far: RBZ
The Reserve Bank of Zimbabwe (RBZ) has said a total 139 570 982 milligrammes (139,57kg) of gold-backed digital tokens valued at $14 077 billion were bought during the initial sale, which opened on Monday and closed yesterday.
RBZ Governor Dr John Mangudya said in a statement yesterday that participating banks received 135 applications, with 132 of the bids coming in local currency, while only three were in US dollars.
The bank said applications under the second issue of its gold-backed digital tokens would again be bought through commercial banks during the course of next week for settlement and issue on Thursday, May 18, 2023.
Also sometimes referred to as a crypto token, digital coin, or often simply, token or coin, a digital coin is a digital representation of value (in Zimbabwe’s case backed by gold) or rights that is offered and sold for the purpose of facilitating access to, participation in, or development of a distributed ledger, blockchain, or other digital data structure.
Dr John Mangudya said the gold-backed digital tokens were fully backed by physical gold held by the central bank.
“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.
Depreciation of local currency, due to excessive demand for the greenback as a store of value, has largely been blamed for driving resurgent price (increases) and exchange rate volatility.
A safe, reliable and profitable alternative investment option will provide another attractive investment instrument for investors holding excess Zimbabwe dollars, which will create less pressure on local currency.
The minimum vesting period for the tokens is 180 days and the digital tokens will be held in either e-gold wallets or e-gold cards. They are tradable via Person-to-Person (P2P) and Person To-Business (P2B) transactions and settlements.
Holders of physical gold coins, at their discretion, can exchange or convert, through the banking system, their gold coins into gold-backed digital tokens.
The bank also advised that the pricing of the gold-backed digital tokens in foreign currency shall remain the same as the pricing model of the physical gold coins whilst payment for the gold-backed digital tokens or physical gold coins in Zimbabwe dollar shall remain at the current 20 percent margin above the interbank mid-rate.
While announcing the Government’s economic stabilisation measures on Thursday, Finance and Economic Development Minister Professor Mthuli Ncube said both digital and physical gold coins had witnessed significant uptake.
He said the RBZ shall continue to assure public confidence in both instruments by ensuring that at all times, gold coins and gold-backed digital tokens remain fully backed by physical gold reserves at the bank.
The economy has seen a resurgence of macroeconomic instability lately, with domestic inflation being driven primarily by the rapid depreciation of local currency due to the skewed preference for US dollars as a savings currency. This has put enormous pressure on the exchange rate as the skewed preferences have continued to increase the velocity of the Zimbabwe dollar.
According to Dr Mangudya, the issuance and usage of the gold-backed digital tokens shall be in two phases.
He said phase 1 entails that the gold-backed digital tokens will be issued for investment purposes with a vesting period of 180 days and redeemable in the same way as the existing physical gold coins.
Phase 2 entails the gold-backed digital tokens held in either e-gold wallets or e-gold cards being tradable and capable of facilitating Person-to-Person (P2P) and Person-to Business (P2B) 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,” he said.
Economists believe the digitally gold-backed currency will deliver a liquid inflation-hedging asset for the investing public, which would be a positive development towards the stability of Zimbabwe.
They contend that if the RBZ can create a secure and accessible trading platform for the tokens, they could be an attractive alternative investment option, especially considering the weak performance of the country’s stock markets.
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.
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 mid-rate,” the RBZ said.
The digital tokens will supplement actual currencies and reach more people, particularly low-income earners who cannot afford physical gold coins. Many low-income earners cannot afford the smallest unit of the physical gold coin, which costs roughly US$200.
Both the gold-backed digital token and the physical 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 genuine coins.