malvernmugadzikwa
Tapiwanashe Mangwiro
The Reserve Bank of Zimbabwe (RBZ) as promised in July, began disbursing 4 500 smaller units of gold coins to banks ahead of the coins’ release onto the market next week Tuesday.
In July this year, RBZ introduced bigger denominations of gold coins as part of measures to ensure investors and the general public have alternative means to preserve value, as the bank also looked to mop up excess liquidity.
Dr. John Mangudya the RBZ governor as was reported on Thursday said; “Just to advise you that starting on the 15th of this month gold coins of lower denominations of a tenth, a quarter and half of an ounce will be on sale starting Tuesday next week.
“We are going to be taking them to the banks on Friday (tomorrow) and Monday so that the public will start buying them on Tuesday.
“So, why are we doing this, so that we do not leave no-one behind and any place behind because we know that the bigger denominations were elitist and we have listened and therefore we are bringing these smaller denominations.”
Analysts have weighed in on the release of the smaller gold coins which they have said will be bought but will not be as effective as the first group of the coins as liquidity is tight.
Some have said the country might be headed for a recession due to tight liquidity, hence will affect the effectiveness of the coins.
Research analyst with FBC Securities, Enoch Rukarwa said; “The relative stability that we have witnessed for the greater part of second half of 2022 has been encouraging, however, in the past three weeks the economy has started experiencing marked volatility in the alternative market rate.”
The parallel market has seen marginal movement as the local currency is now trading between $820 and $870 from a level of $720 and $760 per US Dollar.
Rukarwa added that; “The introduction of smaller denominations is coming at the right time anchoring potential inflationary pressures ahead of the festive holidays and bonus disbursements.
“However, uptake of these coins is likely going to be slower given tight liquidity conditions in the economy.”
Economist Dr. Prosper Chitambara, weighed in saying the coins were necessary but it will come down to the liquidity situation in the country in order to measure their effectiveness.
“It will reign or mop up the liquidity obviously, but I do not think they will be very effective or significant. There are pros and cons obviously so they (RBZ) need to balance those different views and further enhance stability and solve the liquidity problems the economy is already facing,” said Dr Chitambara.
Morgan and Co senior research analyst Tafara Mtutu said; “They are necessary from the perspective of people looking to save their money in other forms which are not stocks or money and were not able to participate in the larger denomination gold coins now have an instrument in which they can participate in.”
Mtutu, however, added that the gold coins as an instrument of mopping out excess liquidity are not necessary as the larger gold coins have already done that.
“The recent monetary pronouncements have also dealt with the issue of liquidity, so you will start to see more of the sales being done in USD than local currency because now businesses and individuals have seen the importance of local currency,” Mtutu said.
According to Mtutu, this is due to the fact that demand has swung from foreign currency to local currency, so no one is willing to part with their local currency as in the first act of gold coins.
Hence as a result, we will see the reduction of nostro balances more than local currency balances as people hedge their cash against inflation in gold coins.
Bongani Ndlovu