Africa: COVID-19, Gold Demand and the Gold-Backed Stablecoin Opportunity

The third decade of the third millennium is returning humanity to the gold standard, but this time it will be backed with decentralized ledger technology.
When markets are bleeding, investors turn to gold. The celebrated precious metal and former reserve standard of the world’s monetary system is valuable for several reasons, but primarily because it is scarce. So scarce, that supply-chain problems with physical gold delivery are manifesting as demand surges amid the COVID-19 financial chaos.Why is gold so popular amid market turmoil? It’s the classic safe-haven asset — one that fares well when inflationary-prone fiat currencies are subject to $6-trillion stimulus packages and equity markets stray violently up and down. In some cases, gold is even known to explode during market uncertainty.Demand for gold is currently so high that the gold futures premium relative to the spot price is the highest it’s been since 1980, during the great oil shock. We’re beginning to see some cracks in the current gold market, though, especially its consolidation. The London Bullion Market Association, or LBMA, is the standard for gold (and silver), but smaller denominations of gold sourced from LBMA and others are becoming increasingly difficult to find.The “denomination problems” are quite simply auditability issues taking the form of high-cost tracking and verification of settlement. And that’s where gold-backed stablecoins can make an impact, among some other appealing caveats.A return to the gold standardAn often floated idea is to return to the gold standard that predominated across the world in the 19th century. In such a system, all government-issued (and even private) currencies were pegged to the value of gold, fostering a fixed, shared economic unit of account for world trade.Gold was the natural result of scaling valuable resources from the numerous “origins of money,” and the gold standard is attributed with helping the world achieve one of its most distinguished periods of economic growth. However, most countries abandoned the gold standard in the 20th century, with Nixon officially axing any relation between the United States dollar and gold in 1971. The age of devaluing fiat currencies — a paper currency model decried by the founding fathers of America — was initiated, which leads us to many of the problems currently experienced today.The problem of returning to a gold standard is that it’s not a realistic endeavor. We have transitioned so far from the gold standard (e.g., $5 trillion daily FX markets, fractional-reserve banking, etc.) that countries moving en masse to acquire enough gold to compensate circulating currencies is impossible. Overhauling the dollar-denominated credit system is practically unfeasible and there’s simply not enough gold available to back all the inflated fiat currencies of today.But that doesn’t mean clever modeling around the concept has been ignored. What’s evident is that during a crisis, people still flock to gold as a safe haven. So, why not initiate a more localized and digital version of gold using a blockchain?When auditability problems today are compounded by the inability to physically settle gold contracts in New York

Post written by our friend Chris Cleverly and Syndicated from Cointelegraph
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