Zimbabwe has launched new gold coins for sale to the public in a bid to tackle chronic hyperinflation.
The gold coins, called Mosi-oa-Tunya, will have “liquid asset status”, meaning they can be converted into cash, traded locally and internationally and used for transactions, the Reserve Bank of Zimbabwe.
People can only exchange the coins for cash after holding them for at least 180 days.
Zimbabwean economist Prosper Chitambara 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.”
According to the International Monetary Fund, inflation in Zimbabwe reached 837% (year-on-year) in July 2020, and while tighter fiscal policy helped bring it down to 60.7% at the end of last year , remains in the high two digits.
This wipes out the value of people’s savings: Many people saw their savings wiped out by the 5 billion percent inflation seen in 2008, according to the IMF.
This insecurity affects confidence in the local currency, the Zimbabwean dollar: many traders do not accept it and many Zimbabweans prefer to use US dollars for savings or daily transactions.
“Chronic Hyperinflation”
Chitambara said: “For Zimbabwe we are in chronic hyperinflation so it is expected that there will be a huge uptake of these gold coins.”
The coins, which have a purity of 22 carats, will be priced based on the international market rate for an ounce of gold, plus 5% to cover production and distribution.
But that price could put them out of reach for many people in a country so poor that a third of the population is at risk of food insecurity.
At the time of launch on Monday, the cost of one Mosi-oa-Tunya coin was US$1,824 (£1,514).
“For the common man, there’s really not much to directly benefit from this, especially if you don’t have any excess cash,” Chitambara said.
“Many people do not have money for bread, much less to save.
“The expectation is that it will indirectly benefit the average person through price moderation.”
Concern over the increase in smuggling
Concerns have also been raised that the new coins could lead to an increase in gold smuggling.
Zimbabwe has large deposits of gold and the export of the metal provides one of its main foreign exchange generators.
But smuggling is widespread because, while all gold mined in the country is legally required to be sold to the central bank, many producers prefer to move it overseas to receive payment in US dollars.
Securities firm Morgan & Co said in a market intelligence report: “Zimbabwe gold deliveries have recovered significantly due to the appetizing US dollar payouts on offer to artisanal miners.
“However, if there was a disparity between the amount of US dollars used to buy the gold from the miners and the US dollars used to pay for the coins, this could squeeze the foreign reserves of the central bank and their intermediaries.
“If this affects artisanal gold miners, this could lead to low deliveries to Fidelity Printers and increased gold smuggling activities.”
Fidelity Printers, a subsidiary of the central bank, is the only authorized buyer of gold in the country.