Zimbabwe Launches Gold-Backed Digital Tokens – Ledger Insights

Last week, the Reserve Bank of Zimbabwe confirmed the issuance of a gold-backed digital currency to provide investors with a platform to save, invest and trade in gold. Thanks to fractionalization, people can acquire digital gold tokens for as little as $10. Tokens will be issued this week and can be used for payments.

Gold-backed digital tokens

The Central Bank of Zimbabwe announced that it will begin issuing a gold-backed digital currency to “expand the value-preserving instruments available in the economy, improve the divisibility of the investment instruments and expand their access and use by the public”.

The offer allows the purchase of digital tokens backed by physical gold from commercial banks, building societies and the People’s Own Savings Bank. It is open to individuals, financial institutions, businesses and other entities.

Make gold available

A key attribute is the low-cost access point. Unlike the physical Mosi-oa-Tunya gold coins, which the central bank introduced in 2022 and sell for over USD 2,000, individuals can acquire fractions of the digital gold tokens for just USD 10. The minimum for institutional investors is USD 5,000.

This is possible thanks to fractionation, a key feature of digital currencies and digital assets that makes assets available to people who previously could not afford them. After all, a $10 gold coin would be pretty small.

Another feature is the pricing model, which is based on the standard international gold price set by the London Bullion Market Association. Users wishing to purchase or redeem the token receive a 20% premium to the mid-bid-offer rate, but the funds are settled in local currency.

Digital token purpose

The original aim of providing an alternative investment route for citizens to maintain the value of their savings can be extended to include payments.

Zimbabwe has long struggled with currency depreciation and exchange rate volatility, so the central bank had initially thought of the digital gold tokens as a store of value.

But the central bank has confirmed that the gold-backed digital tokens “will be tradable and capable of facilitating person-to-person (P2P) and person-to-business (P2B) transactions and settlements”. Local sources report that the means of payment and store of value features will allow the central bank to maintain the token’s fixed convertibility and thus could help it defend the country’s exchange rate.

Will people embrace gold tokens for payments?

However, local pundits also wonder how much the gold-backed digital tokens will be used for payments.

Formal traders currently accept local currency alongside foreign currency to avoid getting on the wrong side of the authorities by rejecting the local currency in favor of the more stable US dollar. But that means they suffer the devaluation costs, while informal traders may insist on payments in foreign currency. Therefore, the formal dealers look forward to accepting these gold tokens because they are “local” but should be less volatile than Zimbabwean dollars.