Zimbabwe introduces gold coins in an attempt to curb inflation, rekindle confidence in the currency

Zimbabwe has launched gold coins for sale to the public in an attempt to curb inflation that is further eroding the country’s volatile currency.

The unprecedented move was announced by the country’s central bank, the Reserve Bank of Zimbabwe, on Monday aimed at boosting confidence in the local currency.

Confidence in Zimbabwe’s currency is at a low, according to the International Monetary Fund, after residents saw their savings wiped out due to hyperinflation in 2008, amounting to $5 billion, according to the International Monetary Fund.

With fond memories of that disastrous inflation, many Zimbabweans today enjoy scrambling in the illegal market for scarce US dollars to keep at home as savings or for day-to-day transactions. Confidence in Zimbabwe’s currency was so low that many retailers did not accept it.

The central bank disbursed 2,000 coins to commercial banks on Monday. According to the governor of the Reserve Bank of Zimbabwe, John Mangudya, the first batches are minted abroad but they will eventually be produced domestically.

The money can be used for purchases in stores, he said, depending on whether the store has enough change.

“The government is trying to moderate the very high demand for the US dollar as this high demand does not match the supply,” said Zimbabwean economist Prosper Chitambara.

“The expectation is… there will also be a moderation in the depreciation of the local currency, which will have a stabilizing effect in terms of commodity prices,” he said.

Cash transaction

Any individual or company can buy money from authorized stores like banks and can keep the money at the bank or take it home, according to an announcement by the country’s central bank. The central bank said foreigners can only buy money in foreign currencies.

Called Mosi-oa-Tunya, in the local Tongan language for Victoria Falls, the coins “will have a liquid asset status, i.e. it will be readily convertible to cash and can be exchanged for cash.” domestic and international transactions The central bank said coins can also be used for trading purposes The bank said coin holders can only trade for cash after 180 days from the date of purchase.

People walk past the Reserve Bank of Zimbabwe building in Harare on Monday. (Tsvangirayi Mukwazhi / The Associated Press)

Each coin, weighing one troy ounce with a purity of 22 carats, can also be used as security for loans and credits, the central bank said. The coin’s price will be determined by the international market rate for an ounce of gold, plus five percent for the cost of producing the coin. At the time of Monday’s launch, the price of the Mosi-oa-Tunya coin was $1,824.

Around the world, gold coins are used in countries such as China, South Africa and Australia to hedge against inflation and as an investment opportunity, although they are not as widely used as currencies as expected. of Zimbabwe’s central bank, Chitambara said.

“For Zimbabwe, we are in a state of chronic hyperinflation so expect a large amount of these coins to be consumed,” he said. However, most Zimbabweans struggle with daily living and will not be able to buy them, he said.

A shopper looks at goods in a supermarket in Harare on June 8. Some shops in Zimbabwe have stopped accepting money from the country. (Tsvangirayi Mukwazhi / The Associated Press)

“For the average person, there’s not really much of a direct benefit from this, especially if you don’t have any excess cash,” says Chitambara.

“Many people don’t have money to buy bread, let alone save money,” he said. “The expectation is that it will indirectly benefit ordinary people through price adjustment.”

Firms with a surplus of cash may find the currency useful as a store of value and also as an alternative investment asset, although individuals and companies are likely to continue to favor the dollar because “it’s convenient and highly liquid,” he said.

The sale of rapidly depreciating local currencies, he said, can also lead to “rental behavior, speculation and arbitrage in the economy”, as some may buy in the local currency and then sold in dollars afterwards.

Gold deposit

Having the Zimbabwean central bank buy gold from metal miners such as informal artisan miners could also pose challenges and lead to an increase in smuggling, according to analysts.

“Gold delivery in Zimbabwe has recovered significantly as a result of attractive US dollar payments offered to manual miners,” securities firm Morgan & Co noted in a market intelligence report. school.

“However, if there is a disparity between the amount of US dollars used to buy gold from miners and US dollars used to pay for coins, this could strangle the bank’s foreign currency reserves. central banks and its intermediaries manual gold miners, which could lead to low Fidelity Printers deliveries and increased gold smuggling operations,” the Morgan report notes. . Fidelity Printers, a subsidiary of the central bank, is the country’s sole authorized buyer of gold.

Manual gold miners work at a mine in Mazowe, Zimbabwe, in April 2018. (Philimon Bulawayo / Reuters)

Zimbabwe has substantial gold reserves and exports of this precious metal are one of the country’s major foreign exchange earners. According to official figures, gold production improves to around 27 tons in 2021, from 17 tons in 2020. Small-scale producers such as poorly managed craft miners have contributed. 17 tonnes of gold will be delivered in 2021, according to official figures.

Gold smuggling is rampant. Interior Minister Kazembe Kazembe said that the country is estimated to lose about 100 million USD a month because of gold smuggling. According to a report by the Center for Natural Resources Management, a local natural resource watchdog, smuggling is costing the country about 33 tons of gold a year.

Legally, all gold mined in Zimbabwe must be sold to the central bank, but many producers prefer to smuggle gold out of the country for payment in US dollars.

Source link


News7h: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button