The Reserve Bank of Zimbabwe plans to issue gold coins as a way for investors in the country to store value as inflation runs rampant in the economy.
The United States isn’t the only country battling rapidly rising prices. The inflation rate in Zimbabwe spiked from 132% in May to 191.6% in June, and the Zimbabwean currency is quickly devaluing against other global currencies, particularly the US dollar.
Enter gold.
On Monday, Reserve Bank of Zimbabwe, John Mangudya, announced the new gold coins would be minted by Fidelity Gold Refineries (Private) Limited and available to the public through normal banking institutions.
The Reserve Bank of Zimbabwe’s Monetary Policy Committee (MPC) resolved to introduce gold coins into the market as an instrument that will enable investors to store value.”
The central bank owns Fidelity Gold Refineries (Private) Limited. It operates as the only gold-buying and refining entity in the southern African country.
The RBZ has not announced a timeline for the introduction of the coins.
Batanai Matsika heads research for Morgan & Co., a Zimbabwean brokerage firm. In an interview with Al Jazeera, he called the introduction of the gold coins a “welcome development” in a market starved of options to hedge against inflation.
For a long time, the market did not have many investment options and this is a new asset class. The thinking was inspired by the need to come up with an instrument that addresses the inflation problems in the economy where purchasing power has been eroded. From what we are gathering, this is going to be a store value.”
Matsika went on to say the fundamentals of gold help it hedge against inflation and geopolitical risk, and that the gold coins would open the gold market to “ordinary investors.”
Typical of central bankers, the RBZ is trying to solve a problem it created. The country has labored under an inflationary monetary policy for decades. According to Al Jazeera, the central bank worsened the problem by printing even more new money, reversing gains made in the past two years. Inflation decreased from a peak of 800% in 2020 to 60% in January this year.
Ironically, Zimbabwean investors have turned to the US dollar as a store of value. The dollar has its own inflationary problem, but as the world reserve currency, the greenback is the cleanest dirty shirt in the laundry. One US dollar sells on the Zimbabwean black market for 650 Zimbabwean dollars.
The availability of gold coins will likely ease pressure on the US dollar in the country. After all, gold is a better long-term store of value than another fiat currency. It has no counter-party risk and it cannot be created out of thin air by central banks.
Economist Tatenda Mabhande said the central bank could use the gold coins to ease inflation if it sold them for Zimbabwean dollars. This would mop some of the excess currency out of the economy. But the coins will more likely be indexed in US dollars. It will basically work as a fundraising scheme for the Zimbabwean central bank, pulling in USD from the market.
Mabhande said the gold coins would likely flow out of the country.
Bad money will drive good money out of the market. We are likely to see the coins disappearing as well.”
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