Emerging market countries have seen the volatility of their local currency fluctuate amid rising interest rates and inflation. The country of Zimbabwe is hoping to alleviate the volatility with the introduction of a gold-backed cryptocurrency.
“The tokens will be a form of electronic money backed by the country’s gold reserves, which will be held by the central bank,” a Coindesk article explained. “The RBZ wants people holding Zim dollars to be able to exchange their money for the gold-backed token to help them hedge against the volatility of the local currency.”
The move comes as other countries around the globe are also experimenting with the idea of digital currencies backed by central banks (central bank digital currencies or simply CBDCs). Last year’s bearish turn in cryptocurrencies may have dissuaded countries from following suit, but this year, markets are trending higher with Bitcoin rising over 60% and Ethereum up over 50% for the year.
In addition to the gold-backed crypto, Zimbabwe was also mulling over the idea of a digital currency as well. The Reserve Bank of Zimbabwe (RBZ) governor introduced the idea, noting that it came about due to global trends.
Gold Prospering in Current Environment
The timing is auspicious for a gold-backed cryptocurrency given that the precious metal is up about 9% for the year, surpassing the $2,000 mark most recently. High inflation is pushing the value of the dollar down as investors seek safe haven assets like gold.
Furthermore, the case for gold is gaining momentum with recession fears swirling in the capital markets. That should also push more investors towards gold in a safe haven scramble, pushing the price even higher.
“Economies around the world have experienced an economic downturn in the last year and there remains uncertainty around how this will play out in the coming months,” a Startup.info article explained. “Some countries, such as the U.K., have narrowly avoided recession recently, and it’s this trepidation around what’s down the line that’s having an impact on gold prices as people seek to invest.”
If cryptocurrencies don’t offer any interest for investors, there are other ways to get exposure to gold such as exchange traded funds (ETFs) that focus on the precious metal. A couple of examples of funds to consider include the SPDR Gold Shares (GLD) and the SPDR Gold MiniShares (GLDM).
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