Disruption of the global
Trust in currencies is vital for the global economy to
function. In the past, when metal money was prevalent, people exchanged gold
and silver coins because they were inherently valuable. By contrast, today’s
paper money is given worth by decree of the state. A major turning point in the
world’s monetary order came in 1971, when the collapse of the Bretton Woods
system ended convertibility between the US dollar and gold, depriving gold of
its status as a currency. The Bretton Woods system was replaced by fiat money,
which was declared legal tender and backed by the faith and credit of the
Today, fiat money still plays a vital role in the
global economy, but its flaws have been laid bare for all to see. Most salient
of all is the problem of overissuance. Many economists believe that excessive
issuance of dollars laid the groundwork for the US subprime bubble, which
culminated in the 2008 financial crisis. Printing money causes currency
depreciation and drives up inflation, prompting economic weakness, or even a
full-blown monetary crisis. One only needs to look at crisis-hit countries such
as Zimbabwe, Venezuela, or Argentina to appreciate the very real consequences
of monetary mismanagement.
In today’s world, many currencies are dependent on the
US dollar, which acts as the global reserve currency. Excessive issuance of
dollars boosts liquidity in emerging markets, triggering currency depreciation,
or even economic collapse. In August 2018, 20 out of 24 emerging-market
currencies tracked by Bloomberg lost value, while the JPMorgan EM Currency
Index fell by 1 percent to historical lows.
It should be noted that the risk of economic disaster
is not limited to emerging markets. Some developed countries also look
vulnerable. Recently, the yield on the US 10-year Treasury note hit fresh
highs, while US equities are flashing bearish signals following a multi-year
bull market. Investment guru Jim Rogers warned that while the dollar appears to
be holding up, the US’s ballooning debt problem could trigger a crisis bigger
than 2008, which could unfold at an unprecedented pace.
The ‘gold standard’ makes a
Given the current high-risk environment, gold could become an increasingly important reserve asset as people understand of its utility as a store of value. Indeed, this shift in attitudes is already underway: in recent years, countries including Germany, Russia, and India have been repatriating their gold reserves from the US. More broadly too, there are mounting calls for a return to the gold standard. In his essay Gold and Economic Freedom, former Federal Reserve chairman Alan Greenspan argued, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” In a similar vein, on inflation, the economist John Maynard Keynes wrote, “By this means the government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.” Keynes believed that nothing surpasses gold as the last guard and emergency reserve of the monetary system.
More recently, the emergence of blockchain technology
has reignited interest in a return to the gold standard. Blockchains are
decentralized, traceable, immutable ledgers. When integrated with a
store-of-value asset such as gold, blockchains enable the creation of a digital
form of gold which, unlike the physical variety, is highly divisible and
portable. This could pave the way for gold to break into the mainstream as a
store of value and means of exchange.
The rise of ‘stablecoins’
Unlike gold-backed digital currencies, whose value is
stable, cryptocurrencies such as bitcoin are highly volatile, making them more
suitable for speculation than long-term investment. The reason for this is that
cryptocurrencies are backed by nothing, and so have no inherent value. This
could well explain the recent crash in the bitcoin price and prolonged bear
market that has ensued.
The volatility of cryptocurrencies has driven demand
for asset-backed ‘stablecoins’ that marry the benefits of cryptocurrencies with
greater price stability. Stablecoins are considered to be the basic building
blocks of the blockchain industry, and a necessary stepping stone for
increasing real-world cryptocurrency adoption.
However, most of the stablecoins available today are
pegged to fiat currencies, which are founded on credit, and have no underlying
assets. As a result, the value of fiat currencies decreases when they are
overissued and fluctuates with monetary policy, making fiat-linked stablecoins
somewhat unreliable. It is for this reason that many people are now turning to
gold-backed stablecoins, which they hope can solve the stability problem.
currencies: a game-changer
Value consensus is an important concept in the blockchain world, and no value consensus is greater than the consensus around the value of gold. The natural scarcity and stability of gold give gold-backed digital currencies properties that allow them to stand head and shoulders above other types of stablecoin.
In October this year, Reuters reported on a milestone
development in the world of digital currencies. A South Korean company accepted
Global Gold Coin (GGC), a gold-backed digital currency, for the settlement of
trade. They were then able to redeem these tokens for 1 kg gold bars at Brink’s
Hong Kong. GGC tokens are issued by the global gold industry blockchain
alliance, Goldlinks, and each token is backed by 0.01g of physical gold.
This example shows that there are businesses out there
that are willing to convert fiat currencies into gold-backed digital currencies
to pay for goods. This is evidence that ‘digital gold’ ticks all of the
required boxes for an instrument of international trade settlement.
Of course, one important precondition for such
currencies is that they are backed up by real, physical gold in a secure and
transparent way. According to the Goldlinks website, every GGC token is issued
out of gold reserves physically held by Goldlinks: one gram of gold underpins
the value of every 100 GGC in circulation. Moreover, these physical reserves
are held by Brink’s Hong Kong, a third-party custodian, and are periodically audited
by an independent organization. Goldlinks also claims to strictly adhere to
Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.
In brief, GGC inherits the scarcity and
inflation-hedging properties of gold, is resistant to exchange rate
fluctuations, and is secured by a distributed, decentralized and immutable
ledger. Moreover, GGC is also a convenient tool for trade settlement and
payments. With such an array of features, it appears that gold-backed digital
currencies are leading the charge for the next big breakthrough in
More than just a virtual
After further investigation, we discovered that in
addition to Goldlinks, there are several other platforms that have launched
gold-backed digital currencies, including Digix, HelloGold, and GoldMint.
According to publicly-available information, the majority of these platforms
offer gold savings and investment products for retail users. However, most also
limit themselves to the role of an intermediary or custodian. They issue
digital gold to users, on behalf of whom they buy and hold physical gold. The
blockchain simply serves to demonstrate the authenticity of the underlying
Goldlinks, by comparison, is much more ambitious. Over
the past two months, the platform has concluded multiple partnerships with
medium and large-scale gold mines in Mongolia, Africa, and Australia. This has
allowed it to integrate the supply chain, from the extraction of gold to its
digitization. Moreover, during the launch of Token Day in Singapore this year,
Goldlinks announced the partnership with the event’s organizer, Bizkey, to roll
out support for GGC on its blockchain-based smart POS system, enabling the
token to be used for consumer payments. This adds a retail plank to Goldlinks’
development strategy, which is also promoting the use of GGC in international
In remarks at a press conference, Goldlinks CEO Ouyang
Yun previously stated, “At Goldlinks, our mission is to use blockchain
technology to unite the producers, consumers, and investors of the gold
industry; create a global community of gold-based blockchain users; and
transform GGC into a currency and means of value exchange.
It’s clear from the above that gold-backed digital currencies offer much more than your average virtual currency or ‘altcoin’. Gold-backed currencies, much like fiat currencies, can be used as both a unit of account and a medium of exchange. However, unlike fiat currencies, gold-backed currencies represent an underlying asset with real value. What’s more, the race to define this exciting new currency proposition has only just begun!
Global gold industry blockchain alliance, Goldlinks, has issued a gold-backed token GGC, or Global Gold Cash, based on Ethereum blockchain. The Goldlinks team includes veterans of blockchain technology, finance, business and gold industry. They are aiming to transform GGC into a medium of value exchange which is applied to trade settlement, pricing, consumption payment, etc, and finally build the Goldlinks business ecosystem upon that.