The introduction of gold coins by the Reserve Bank of Zimbabwe (RBZ) to mop up excess liquidity in the market and halt runaway inflation seems to be bearing fruit, at least for now.
As at 22 September 2022, a total of 9,516 gold coins valued at Z$9bn (US$1=Z$650) had been sold to both individuals and corporate buyers, according to the Reserve Bank of Zimbabwe Governor, Dr John Mangudya. Each coin weighs one troy ounce and has a purity of 22 carats.
Individual buyers had taken up 35% of the bullion, with 65% being snapped up by corporates.
The gold coins are minted by the RBZ-owned Fidelity Printers, the sole buyer of gold in the country. Their price is determined by the international market rate for an ounce of gold, plus five per cent for the cost of producing the coin.
The Zimbabwe government took the unprecedented step of introducing gold coins as legal tender after inflation spiked from 191% in June to 257% in July this year. The local currency tumbled in worth from Z$108.66 to US$1 at the start of the year, to Z$481.85 to US$1 in August at the official rate, and to Z$800 to US$1 on the black market.
The gold coins were introduced on 25 July as part of several policy measures to ease demand for the greenback, stabilise the Zimbabwe dollar exchange rate and tame resurgent inflation.
Sky-rocketing inflation saw people rushing to cash in their Zimbabwean dollars for US dollars, to stop their savings losing value.
This led to a shortage of US currency and drove up exchange rates, so the central bank reacted by halting loans.
The government credits the coins for halting the decline in the parallel market rate for the Zimbabwe dollar, allowing it to converge with the official rate, which has plunged more than 80% against the US currency this year. As of 12 October 2022, both the official and the black market rates traded at Z$650 to the greenback.
The Mosi-oa-Tunya Gold Coins were among a coterie of interventions introduced by authorities to stabilise the Zimbabwe economy, including a sharp increase in the bank policy rate from 80% to 200%. The bank policy rate is used by banks to benchmark minimum lending rates.
RBZ Governor, Dr Mangudya said in mid-September that the Bank’s Monetary Policy Committee “noted with satisfaction the improved market confidence and uptake of gold coins as an alternative investment instrument to the US dollar”.
Currently, the central bank has been supplying the market with one-ounce coins, which hit the market at US$1,884.80 or Z$936,589.89, which saw fewer ordinary people participating because of the elevated price.
The RBZ will in November introduce lower denomination gold coins to enable the participation of ordinary citizens. The smallest, a tenth of an ounce, will be made available to the public through banks and approved dealers.
The coin, containing just over 3.11 grams of gold, will cost US$188.48 or the local currency equivalent at the interbank rate, at one-tenth of the price of the first gold coin released in July.
Published on: African Business
Publication date: 27 October, 2022