In a bid to tackle chronic hyperinflation, Zimbabwe has launched new gold coins which will have “liquid asset status”. This means they can be converted to cash, traded locally and internationally, and used for transactions. Although most Zimbabweans struggle with daily survival and won’t be able to buy the coins, it is hoped that indirectly, the move will benefit the ordinary person through moderating prices. There are concerns however that selling the coins in fast depreciating local currency could result in rent-seeking behaviour, speculation and arbitrage within the economy.
Important Points as Reserve Bank of Zimbabwe introduces Gold coins to tackle inflation
– Zimbabwe launches gold coins as legal tender to tackle hyperinflation
– The coins – called Mosi-oa-Tunya – will have “liquid asset status”, meaning they can be converted to cash, traded locally and internationally, and used for transactions
– The move is aimed at boosting confidence in the local currency
– However, many Zimbabweans struggle with daily survival and won’t be able to buy the coins
– Companies with excess cash can find the coins useful to store value and also as an alternative investment asset
– Selling the coins in fast depreciating local currency could also result in rent-seeking behaviour, speculation and arbitrage within the economy
– The fact that Zimbabwe’s central bank would have to buy the gold from miners of the metal such as informal artisanal miners could also present challenges and result in increased smuggling, analysts say
– Gold deliveries in Zimbabwe have significantly recovered because of the appetising US dollar payments offered to artisanal miners,” noted securities firm Morgan and Co in a market intelligence report.
“However, should there be a disparity between the amount of US dollars used to purchase the gold from miners and the US dollars used to pay for the coins, this could squeeze the central bank and its intermediaries’ foreign currency reserves. If this ripples to artisanal gold miners, this could result in low deliveries to Fidelity Printers and increase gold smuggling activities, noted the Morgan report.
– Fidelity Printers, a subsidiary of the central bank, is the country’s only authorised gold buyer.
– Zimbabwe has substantial gold deposits and exports of the precious metal is one of the southern African country’s major foreign currency earners.
– Gold production improved to about 30 tons in 2021, compared to 19 tons in 2020, according to official figures.
– Smallscale producers such as poorly regulated artisanal miners contributed 19 tons of the gold delivered in 2021, according to official figures.
– Gold smuggling has been rampant. The country is estimated to be losing about USD 100 million dollars worth of gold monthly to smuggling, home affairs minister Kazembe Kazembe has said.
– Smuggling is costing the country about 36 tons of gold annually, according to a report issued this month by the Centre for Natural Resource Governance, a local natural resources watchdog.
– Legally all gold mined in Zimbabwe is supposed to be sold to the central bank, but many producers prefer to smuggle the gold out of the country in order to get payment in US dollars.
– The launch of gold coins could help to curb smuggling and also provide an alternative investment asset for companies with excess cash.
– However, it remains to be seen whether the general public will be able to afford the coins and whether the move will be successful in boosting confidence in the local currency.
The launch of gold coins as legal tender in Zimbabwe is a bold move to tackle the country’s chronic hyperinflation problem. While it remains to be seen whether this will be successful in the long term, it is a step in the right direction and shows that the authorities are willing to try new and innovative solutions to address the country’s economic challenges.