Harare, Zimbabwe – Zimbabwe is set to introduce gold coins that will allow investors to store value in the country as inflation spins out of control and the local currency continues to devalue rapidly against major currencies.
The move comes after June inflation jumped to 191.6% from 132% in May.
In a statement on Monday, the Southern African country’s central bank chief, John Mangudya, said the new gold coins would be available from normal banking institutions.
“The Monetary Policy Committee (MPC) of the Reserve Bank of Zimbabwe has decided to introduce gold coins into the market as an instrument for investors to store value,” Mangudya said. “The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.”
Fidelity Gold Refineries (Private) Limited is the sole gold buying and refining entity in the country and is owned by the central bank.
The central bank’s monetary policy committee expressed “great concern over the recent rise in inflation”, which rose 30.7% on a monthly basis for June 2022.
The authorities are trying to extricate Zimbabwe from the clutches of an economic crisis characterized by high inflation, a rapidly devaluing local currency, 90% unemployment and declining manufacturing output.
The country’s inflation has been on an upward trend over the past three months as inflationary pressures mount, driven by the continued weakening of the Zimbabwean dollar which is trading at $1:650 on the black market.
The printing of new money by the central bank has also worsened the situation, reversing the gains made over the past two years which have seen inflation fall from a peak of 800% in 2020 to 60% in January this year. .
As part of measures to stabilize the economy, the central bank will more than triple the lending rate from 80% to 200% per year and raise the interest rate from 50% to 100% per year.
Harare-based independent economist Victor Bhoroma welcomed the apex bank’s interventions, saying positive interest rates would reduce both “speculative borrowing in the economy and money supply growth”.
“Gold coins are a good idea in terms of storing value. This can be a way to reduce the pressure on the US dollar if it is sold in Dollar Zim, thereby stabilizing inflation,” Bhoroma told Al Jazeera. “But they’ll probably be pegged to US dollars, which means it’s a fundraising program to get dollars out of the market by the central bank. So success will depend on trust in the central bank in as the seller of the parts and the warranties that back them.
If confidence continues to decline, the market will maintain a preference for hard currencies, he said.
A welcome development
Investment analysts seem to be getting closer to the idea of gold coins.
Batanai Matsika, head of research for brokerage firm Morgan & Co, said the gold coin was a welcome development in a starved market for investment options and will help investors hedge against inflation.
“For a long time the market didn’t have many investment options and this is a new asset class,” Matsika told Al Jazeera by phone. “The thinking was inspired by the need to come up with an instrument that solves the problems of inflation in the economy where purchasing power has been eroded. From what we gather, this is going to be a market value.
Gold has certain fundamentals that help it hedge against inflation and geopolitical risk, he said, adding that the concept was not entirely new.
“The idea is emulated from the Kruger rands,” Matsika said. “It’s also a way to open up the gold market to ordinary investors. From an investment advisory perspective, this is a potentially exciting area. It might come in handy.
Harare-based Akribos Capital economist Tatenda Mabhande expressed optimism about the gold coin’s ability to act as a store of value.
“In terms of the coin acting as store value, this is a good step given that the value of the Zimbabwean dollar was eroding. People were looking for the US dollar as a store of value,” Mabhande told Al Jazeera. “This will ease the pressures on the US Dollar, but the demand for the USD will still be there. However, we don’t see the gold coin tackling exchange rate volatility.
He said the gold coin was an attempt by the government to reduce the demand for US dollars.
“As long as Zimbabwe remains a net importer, there will always be a demand for dollars,” he said. “Along the way, bad money will drive good money out of the market. We will probably see coins disappearing as well.
For the gold coins to be effective, Mabhande said those looking to acquire them should be able to pay in Zimbabwean dollars, not US dollars, to mop up the excess local currency in circulation.
Mabhande added that the central bank must ensure that the face value of the gold coin “is always higher than its intrinsic value” for it to be treated as money and for investors to use it as an asset. alternative to American unity.
Central bank spokesman Isaac Muzambi did not respond to questions from Al Jazeera about the expected timing for the introduction of gold coins.
The new central bank measures come as President Emmerson Mnangagwa, in power since November 2017, is reportedly desperate to shake off some of the economic problems inherited from his administration.
On Saturday, Mnangagwa promised to announce additional economic measures to stabilize the economy. On Monday, the Minister of Finance, Mthuli Ncube, announced a number of measures which will, among other things, increase the salaries of civil servants and revise upwards the allowances of the health sector and teachers.
Ncube also blamed businesses and Zimbabweans for fueling inflation and causing the Zimbabwean dollar to collapse.
Speaking to reporters in the capital, he said his claims were backed up by recent “econometric studies carried out by the University of Zimbabwe” and that inflation “is not caused by the normal real economic variables but by behavioral variables such as confidence, adverse inflation expectations”.
Ncube also banned price reductions for payments made in US dollars, warning that culprits would be prosecuted and operating licenses would be revoked for violators.
Bhoroma said the minister’s moves were unimpressive.
“There was nothing big in the Treasury statement considering that the USD is already legal tender based on the 2009 and 2012 finance law,” he said. “The U.S. Dollar Credit Protection Guarantee Act is a welcome step to provide stability and certainty to banks obtaining lines of credit for subsequent lending to the corporate sector.”
He said the removal of the diesel tax and fuel tax cuts would have minimal effect on the price of fuel in the country as prices in Zimbabwe remained “the highest in the SADC region, thus making local products uncompetitive”.