Kyrgyzstan Plans to Debut Gold-Backed Stablecoin USDKG in Q3 2023

Kyrgyzstan is planning to launch its own gold-backed stablecoin, named Gold Dollar or USDKG, in the third quarter of this year. The stablecoin, which is pegged 1:1 with the U.S. dollar, will be backed by $500 million in gold from the Kyrgyz Ministry of Finance. The stablecoin is designed to facilitate seamless cross-border transfers in a country where remittances account for 30% of the GDP.

The Ministry aims to expand the gold reserves to as much as $2 billion, with independent audits planned to ensure trust and transparency in the collateral backing.

Gold has long been regarded as a highly liquid, risk-free store of value. However, its occasional price swings pose a potential risk to the stability of the stablecoin.

To mitigate this, the stablecoin will be overcollateralized, Guerra noted, adding that its primary use case would be moving capital across borders.

"The stablecoin will be used in cross-border transactions and international trade with an initial focus on Central Asia and expansion into Southeast Asia and the Middle East planned for later," Guerra said.

Note that USDKG is not intended to track gold prices like USDT or PAXG. Instead, it will be solely backed by gold reserves and issued and redeemed on a 1:1 basis with USD, maintaining a stable value tied directly to the global reserve fiat currency widely used in international trade.

USDKG holders can redeem their stablecoins for physical gold and other crypto assets or withdraw them as fiat currency.