“Gold coins can stabilise the economy”

Business Writer

The proposed introduction of gold coins in Zimbabwe as an alternative to preserve value against the negative impact of raging inflation, has potential to normalise the economy if properly implemented given the stability and value storage associated with the mineral globally, according to economic analysists.

Reserve Bank of Zimbabwe (RBZ) yesterday announced it was envisioning the introduction of gold coins as part of ways to cushion investors and the general public from rising inflation.

Gold is considered a safe haven against inflation and a gold coin is made mostly or entirely of gold, while most gold bullion coins are pure gold.

Studies show that gold has outperformed the inflation rate and reduced the risk by a considerable margin. Most gold coins minted are 90–92 percent gold (22 karats).

Popular bullion coins include the American eagle, the Canadian Maple Leaf, the South African Krugerrand, the Isle of Man Gold Cat, the Australian Kangaroo, and the China Mint Panda Bear.

The country’s inflation increased to 191,6 percent and 30,7 percent on a year-on-year and month-on-month basis for June 2022 respectively, which is far astride from government projections of achieving 30 percent inflation rate by the end of year.

Equity Axis, financial analyst and managing director, Respect Gwenzi, acknowledged that the stance was only relevant if conducted in an appropriate manner.

“Gold coins can only become effective as an investment asset if they are minted with commensurate value of actual gold or there is a transparent mechanism to measure Gold value in RBZ vaults to back the Gold Coins. We once were told bond notes were backed by some facility, “said Gwenzi.

Weighing in, economist Professor, Gift Mugano, said the introduction of gold coins would be a positive initiative given that pressure to spend on buying US dollars for hedging will be minimised given that individuals or companies will have alternative commodity to store their monetary value in.

“The introduction of the gold coins looks like a good instrument which can be used to mop money supply because we are assuming that there is a lot of money on the market, so people instead of buying foreign currency they will buy gold coins and in that way, you will avoid speculation and rise in USD terms because of that new currency, but it requires clarity on the pricing regime,” said Prof Mugano.

According to RBZ the “gold coins” will be minted at the Fidelity Gold Refineries, and will be available through normal banking channels.

In a statement, RBZ Governor Dr John Mangudya, said the Monetary Policy Committee (MPC) had noted the increase in inflation with concern as it was stifling consumer demand and confidence, an undesirable position that has the potential to derail economic strides attained in the economy over the past two years.

“The Monetary Policy Committee (MPC) resolved to introduce gold coins into the market as an instrument that will enable investors to store value.

“The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels,” said Dr Mangudya.

Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer, Christopher Mugaga, said the introduction of gold coins by the RBZ was reflection that central bank was actively looking for ways to tame the raging inflation.

“Gold coins are a convenience measure not a fundamental measure and we believe central bank is trying by all means to align its policies with realities on the ground, what we hope and need is for the fiscal side to continue to maintain discipline, not creating a hole which will be difficult to fill, because the only way to deal with that hole will be monetising a process we know will lead to the printing of money which we should not do,” said Mugaga.

On the stance to increase of bank policy rate, Mugaga said the central bank was doing all it could to curb the rising inflation which has been fuelled mainly by arbitrage and speculative behaviours.

“The central bank is just trying to be realistic as possible, given the real dynamics in the economy by adjusting the interest rates upwards, they are just trying to tame the arbitrage and realign the economy alongside all other sectors of the economy outside the monetary sector.

“I think RBZ is alive to the realities regarding inflation outlook, which is quite grave in the short term, inflation numbers are facing upwards and interest rates is where it all begins,” he said.