Investors seem to be warming up for the gold coins that were announced by Zimbabwe’s Reserve Bank chief John Mangudya as a strategy to enable investors to store value within the country as inflation spirals out of control.
The move comes as the local currency continues to rapidly devalue against major currencies worsening inflation which increased by 30.7% on a month-on-month basis for June 2022.
In a statement on Monday, Mangudya said:
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 gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.
Fidelity Gold Refineries (Private) Limited is the sole gold buying entity and refining entity in the country and is owned by the central bank.
Harare-based independent economist Victor Bhoroma commended the central bank’s interventions, saying positive interest rates would reduce both “speculative borrowing in the economy and money supply growth”. Bhoroma told Al Jazeera:
Gold coins are a good idea in terms of storing value. It can be a way to reduce pressure on the US dollar if sold in Zim dollar thus stabilising inflation,” But they will likely be indexed in US dollar which means it’s a fundraising scheme to get USD from the market by the central bank. The success will thus depend on confidence in the central bank as the seller of the coins and guarantees that back them.
Batanai Matsika, the head of research for stockbroking firm, Morgan & Co, said the gold coin was a welcome development in a market starved of investment options and will help investors hedge against inflation. Matsika told Al Jazeera via telephone:
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.
The idea is being emulated from the Kruger rands. It’s also a way of opening the gold market to ordinary investors. From an investment advisory point of view, it’s an area that is potentially exciting. It could prove to be worthwhile.
Harare-based Akribos Capital economist Tatenda Mabhande expressed optimism about the gold coin’s ability to act as a store of value. Mabhande told Al Jazeera:
Regarding the coin acting as a store value, it’s a good step given that the Zimbabwean dollar’s value was being eroded. People were going after US dollar as a store of value. It is going to ease pressures on the US dollar but demand for the USD will still be there. We don’t see the gold coin addressing exchange rate volatility though.
For as long as Zimbabwe remains a net importer, there will still be demand for dollars. Along the way, bad money will drive good money out of the market. We are likely to see the coins disappearing as well.
Mabhande added that in order for the gold coins to be effective, those seeking to acquire them should be able to pay with Zimbabwe dollars and not US dollars, to mop up excess local currency in circulation.
Mabhande added that the central bank needs to ensure that the face value of the gold coin “is always greater than its intrinsic value” for them to be treated as money and for investors to use it as an alternative to the US unit.