Zimbabwe launches gold coins as legal tender to stem inflation

HARARE, Zimbabwe (AP) — Zimbabwe has released gold coins for sale to the public in a bid to rein in runaway inflation that has further eroded the country’s unstable currency.

The unprecedented move was announced by the country’s central bank, the Reserve Bank of Zimbabwe, on Monday to bolster confidence in the local currency.

Confidence in Zimbabwe’s currency is low after people saw their savings wiped out by hyperinflation in 2008 that reached 5 billion percent, according to the IMF.

With strong memories of this disastrous inflation, many Zimbabweans today prefer to rush to the illegal market for scarce US dollars to keep at home as savings or for daily transactions. Confidence in the Zimbabwean currency is already so low that many retailers do not accept it.

The central bank disbursed 2,000 coins to commercial banks on Monday. The first batch of coins were minted outside the country, but they will eventually be produced locally, according to Reserve Bank of Zimbabwe Governor John Mangudya.

The coins can be used for in-store purchases, depending on whether the store has enough change, he said.

“The government is trying to moderate the very strong demand for US dollars because this strong demand is not matched by supply,” said Zimbabwean economist Prosper Chitambara.

“There is also expected to be a moderation in terms of local currency depreciation, which should have a sort of stabilizing effect in terms of commodity prices,” he said.

Any individual or company can purchase the coins from authorized outlets such as banks and can keep the coins at a bank or take them home, according to an announcement from the country’s central bank. Foreigners can only buy the coins in foreign currency, the central bank said.

Called Mosi-oa-Tunya, which in Tonga’s local language refers to Victoria Falls, the coins “will have liquid asset status, i.e. they can be easily converted into cash and will be negotiable. locally and internationally. The coin can also be used for transactional purposes,” the central bank said. People holding the coins can only exchange them for cash after 180 days from the date of purchase, the bank said.

The coins, each weighing one troy ounce with a purity of 22 carats, can also be used as collateral for loans and credit facilities, the central bank said. The price of the coins will be determined by the international market rate for one ounce of gold, plus 5% for the production cost of the coin. At launch on Monday, the cost of the Mosi oa Tunya coin was $1,824.

Internationally, gold coins are used in countries like China, South Africa, and Australia to hedge against inflation and as an investment opportunity, although they are not as widely used as the currency that the central bank of Zimbabwe is considering, Chitambara said.

“For Zimbabwe, we are in chronic hyperinflation, so it is expected that there will be a huge absorption of these gold coins,” he said. However, most Zimbabweans struggle for daily survival and will not be able to buy them, he said.

“For the common man, there really isn’t much to directly benefit from this, especially if you don’t have excess money,” Chitambara said.

“A lot of people don’t have money to buy bread, let alone save money,” he said. “This is expected to indirectly benefit the common person by moderating prices.”

Businesses with excess liquidity may find the coins useful for storing value and also as an alternative investment asset, although individuals and businesses will likely continue to prefer the dollar as “it is convenient and very liquid” , did he declare.

Selling the coins in a rapidly depreciating local currency could also lead to “rent-seeking, speculative and arbitrage behavior within the economy” as some might buy using the local currency and then sell in higher dollars. late, he said.

Analysts say the fact that Zimbabwe’s central bank has to buy gold from metal miners, such as informal artisanal miners, could also present challenges and lead to increased smuggling.

“Zimbabwe gold deliveries have picked up significantly on the back of mouth-watering US dollar payments offered to artisanal miners,” securities firm Morgan & Co noted in a market information report.

“However, if there were to be a disparity between the amount of US dollars used to buy gold from miners and the US dollars used to pay for coins, this could squeeze the foreign exchange reserves of the central bank and its intermediaries. If this trickles down to artisanal gold miners, it could lead to low deliveries to Fidelity Printers and increased gold smuggling activity,” the Morgan report notes.The central bank subsidiary Fidelity Printers is the only country’s authorized gold buyer.

Zimbabwe has large deposits of gold and exports of this precious metal are one of the main sources of foreign exchange for the southern African country. Gold production improved to around 30 tonnes in 2021 from 19 tonnes in 2020, according to official figures. According to official figures, small producers such as poorly regulated artisanal miners supplied 19 tonnes of the gold delivered in 2021.

Gold smuggling is rampant. The country is estimated to lose around $100 million worth of gold per month to smuggling, Interior Minister Kazembe Kazembe said. Smuggling costs the country about 36 tonnes of gold a year, according to a report released this month by the Center for Natural Resource Governance, a local natural resource watchdog. Legally, all gold mined in Zimbabwe is supposed to be sold to the central bank, but many producers prefer to smuggle gold out of the country in order to be paid in US dollars.

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