Zimbabwe debuts with gold coins as legal tender to curb inflation

Zimbabwe has launched gold coins for sale to the public in a bid to tame runaway inflation that is further eroding the country’s volatile currency.

Key points:

• Zimbabwe’s inflation hit 5 billion percent in 2008
• Trust in the currency is low
• Coins can be used for in-store purchases

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

Confidence in Zimbabwe’s currency was low after people saw their savings erased by hyperinflation in 2008 that reached 5 billion percent, according to the International Monetary Fund (IMF).

With strong memories of disastrous inflation, many Zimbabweans today prefer to scramble in the illegal market for scarce US dollars to keep at home as savings or for day-to-day transactions.

And confidence in the Zimbabwean currency is already so low that many retailers don’t accept it.

The central bank disbursed 2,000 coins to commercial banks on Monday.

The first coins were minted overseas but will eventually be produced locally, according to the Reserve Bank governor of Zimbabwe, John Mangudya.

The coins could be used for purchases in stores, depending on whether the stores had enough change, he said.

“The government is trying to moderate the very high demand for the US dollar because this high demand is not being matched by supply,” said Zimbabwean economist Prosper Cblackbara.

“The hope is … there will also be a moderation in terms of local currency depreciation, which should have some sort of stabilizing effect in terms of the price of goods.”

Any individual or company can purchase coins from authorized outlets such as banks, using local currency or foreign currency and buyers can choose to deposit coins in the bank or take them home.

Reserve Bank of Zimbabwe Governor John Mangudya holds a sample of gold coins.(AP: Tsvangirayi Mukwazhi)

Mosi-oa-Tunya

Called Mosi-oa-Tunya—which in the local Tongan language refers to Victoria Falls—the coin “will have the status of a liquid asset, that is, it will be easily convertible into cash, and will be tradeable locally and internationally. for transactional purposes,” the central bank said.

People holding coins can only exchange them for cash after 180 days from the date of purchase.

The coin, which is 22 carats pure, can also be used as collateral for loan and credit facilities, the central bank said.

The price of the coin will be determined by the international market price for an ounce of gold, plus 5 percent for the cost of producing the coin.

At launch on Monday, the cost of the Mosi oa Tunya coin was US$1,824 ($A2,620)

A change but not for the average citizen

Many people in Zimbabwe have seen their savings run out due to hyperinflation. (AP: Tsvangirayi Mukwazhi)

Internationally, gold coins are used in countries such as China, South Africa and Australia to hedge against inflation and as investment opportunities, although they are not used as widely as currency as Zimbabwe’s central bank envisions, said Cblackbara.

“For Zimbabwe we are in chronic hyperinflation so the expectation is that there will be a huge uptake of this gold coin,” he said.

However, one downside is that for many Zimbabweans, coins may be out of reach.

“For the average person, there’s not much immediate benefit from this, especially if you don’t have excess cash,” said Mr Cblackbara.

“Many people don’t have money to buy bread, let alone to save.

“The hope is that it will indirectly benefit ordinary people by moderating prices.”

Companies with excess cash can find coins useful for storing value as well as an alternative investment asset, although individuals and companies are likely to continue to prefer dollars because it’s “convenient and highly liquid,” he said.

Selling coins in the rapidly depreciating local currency can also result in “rent seeking, speculation, and arbitrage behavior in the economy,” as some can buy using the local currency and then sell them in dollars later, he said.

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, analysts said.

AP

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