Banks run out of gold coins as demand soars
DEMAND for the new Zimbabwean gold coins has been overwhelming and banks have been inundated by their corporate and individual customers seeking a legal and sensible way of preserving value.
The Reserve Bank of Zimbabwe introduced the coins a week ago to help cushion corporates and individuals from the negative impact of declining cash values and mop up large sums of Zimbabwe dollars sloshing around in some bank accounts of corporates and wealthy individuals.
In an interview with Zimpapers Radio, Bankers Association of Zimbabwe president Mr Fanwell Mutogo said banks were now seeking to replenish their stocks of gold coins following a huge demand that saw them exhaust their initial allocations.
“The demand for the gold coins has been overwhelming both from individuals and corporates although the ratio is in favour of corporates. Most banks are now in the process of ordering more coins from the Reserve Bank of Zimbabwe to replenish their stocks,” he said.
The gold coins, each holding one troy ounce of gold, are minted at the Fidelity Gold Refineries and are being sold through normal banking channels and Reserve Bank agencies. The price is the price of a troy ounce of gold plus a 10 percent minting charge.
In an interview with The Sunday Mail, RBZ Monetary policy committee member, Mr Percy Gwanyanya, concurred with Mr Mutogo on the demand and noted that even those that were critical of the policy of selling bullion coins were anxious to be considered.
He said the whole idea of the gold coins is to provide a viable alternative to the United States dollar as a store of value.
“That is necessary to deal with inflation and currency depreciation which were being driven by the high demand for the US dollar. The auction system has mainly been catering for the constituency that is in international trade,” said Mr Gwanyanya.
He said there are some people or institutions with huge sums of local currency on hand and they need to be catered for by having access to facilities that enable them to store value and protect them against exchange rate changes.
That same process also returns those huge sums in unused local currency back to the Reserve Bank instead of having it in the hands of black market dealers where it would be used for manipulation.
Many were breaking the law by going to the black market to buy US dollars to stash away in safes and trunks, but now they can legally buy the coins instead and their purchases take the local currency used to buy the coins out of circulation.
With inflation in the United States at almost 10 percent, the coins are likely to appreciate against the US dollar in the medium term at least.
Mr Gwanyanya said the common question that might be asked by many people relates to the high cost of gold coin that is linked initially to the value of one ounce, something that might create an impression that they were not accessible to everyone in the economy.
“So if one ounce is going for US$1 800 plus, how many of us can afford the gold coins?
“Here is the answer, gold coins are a policy instrument that the Reserve Bank of Zimbabwe is using to mop up excess liquidity. Given the structure of the economy where liquidity is in the hands of a few contractors, institutional investors and pension funds, there is need to mop up that liquidity from these institutions.
“So, initially they are the target, although there are no restrictions to anyone; those that have significant local currency balances. But it is a starting point,” said Mr Gwanyanya.
“Although, some are saying there will be arbitrage, but we cannot just sit and watch because we are afraid.”
He said because confidence levels are very low, there is a need for an instrument that is very attractive for it to be subscribed to and that was the gold coins.
A lot of the arbitrage risks were diminished when the Reserve Bank forced banks to investigate loan applications fully and shoved up the minimum interest rate to 200 percent.
This makes it both difficult and very expensive for anyone to borrow money to buy coins, with loans being the main source of arbitrage funds, but those with accounts holding unborrowed funds, it is easy to buy from their banks.
“We must understand what we call the transition mechanism. This is whereby there is a gold rush from those with Zimbabwean dollars as you have started to see. Even those who initially complained now want to be considered and have access to the gold coins,” said Mr Gwanyanya.
Members of the public spoken to welcomed the introduction of the gold coins.
“From what we have been told and what we have read it seems to be a good idea. Our concern is how as ordinary persons we can have access to them,” said Ms Shylet Muradzikwa of Glen View.
A vendor in Harare’s Central Business District, Ms Nosta Machemedze, said the central bank should raise public awareness in rural communities.
“While a lot has been said about gold coins in the mainstream media, a lot needs to be done in the rural areas and other remote areas who might not have access to newspapers or television and such other medium of communication,” said Ms Machemedze.
Mr Pedzisai Muraga, a retired civil servant concurred saying taking the information to the rural areas was consistent with President Mnangagwa’s policy of leaving no one and no place behind in terms of development.
“This can be achieved through educating community leaders such as traditional leaders and councillors. So the message can be taken by local Members of Parliament but there is a need to ensure that the objective of the gold coins is better understood,” he said.
Other countries that have minted gold coins, usually major gold producers although Britain imports gold to mint its version, started with the one ounce coin, usually massing a bit more since the gold is alloyed a bit to make it harder, but with the gold content still one ounce.
Then smaller coins were minted later on to allow ordinary people to have a stake in gold.