THE Reserve Bank of Zimbabwe (RBZ) says its planned gold coins, to be introduced as an alternative investment option and inflation hedge on July 25, will be traded in both Zimbabwe dollars and foreign currency.
RBZ Governor Dr John Mangudya said in an interview this week that the gold coins, to be called Mosi oa Tunya, which will contain an ounce of pure gold, would provide an alternative investment option and also act as a store of value, currently dominated by the US dollar amid resurgent inflation.
Notably, prior to the latest update by the RBZ governor speculation was rife that the gold coins would be sold exclusively in foreign currency, a proposition analysts said would increase demand for and pressure on the US dollar in the parallel market.
Analysts believe the gold coins present an opportunity for the RBZ to make the local currency attractive to the investors if the coins are issued mainly in local currency, which will result in US dollars chasing the local unit as people would need it to make the investment.
A gold coin is made mostly or entirely of gold. Gold has been used as money for many reasons and chief being that it is fungible, with a low spread between the prices to buy and sell.
“As you are aware, the US dollar has largely been used for two things; for the importation of goods and store of value. The gold coins will provide an alternative investment option to the US dollar as a store of value,” Dr Mangudya said.
He added that investors that purchase the gold coins will be able to preserve value, especially the negative impact of inflation as is currently the case on the domestic and global stage while investors would also be able to make good profits when gold prices rise.
As an inflation hedge, the gold coins will come in handy for investors given resurgent price increases triggered by Zimbabwe dollar exchange rate volatility and the negative impact of the war in Ukraine, which has sent global commodity prices through the roof.
The introduction of gold coins, Dr Mangudya said, as an alternative and attractive investment option would reduce pressure on the US dollar on the open market, where excessive demand for the greenback has resulted in the depreciation of the Zimbabwe dollar.
He also said the apex bank would also put in place modalities that would see the bank buy back the gold coins, an arrangement that should bolster confidence among investors as to the sustainability of the coin’s market in the country.
The RBZ more than a week ago announced plans to introduce gold coins following a resolution agreed on by the bank’s Monetary Policy Committee (MPC), as a new investment instrument that also doubles up as a store value for local investors.
Dr Mangudya, who chairs the MPC, said in a statement; “The 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, Zimbabwe’s sole authorised buyer of gold, while the central bank indicated the precious coins would be sold to the public through normal banking channels.
Buyers will be able to purchase and redeem the gold coins through normal banking channels, the coins may also be sold to the central bank-owned companies namely Fidelity Printers and Refiners and Aurex Private Limited.
However, the Governor said the central bank was expected to release the operational modalities around which the gold coins would be traded.
“Authorised dealers are advised of the
introduction of gold coins into the market, as an instrument that will enable investors to store value. The gold coins will be minted by Fidelity Hold Refineries Limited and will be sold to the public through normal banking channels.
“Operational modalities for the handling of the gold coins shall be availed in due course,” Dr Mangudya said.
Analyst Farai Mutambanengwe said if the gold coins were to be sold in local currency they would provide a solution to the current inflationary challenges in the country. This would create competition for the US dollar as the most popular inflation hedge and reduce its demand.
“The gold coins will have to be made available exclusively in Zimbabwe dollars, not US dollars. They can have an issue price, but most likely they will develop a secondary market on which they trade. The ideal would be for the Government to insist on exclusive trade in Zimbabwe dollars and they can even be auctioned.”
Earlier, economist Dr Prosper Chitambara commented on the issue saying, “the idea is noble, it has worked before in other countries and it has proven to be a good fit with storing value and hedging against inflation. We know that with gold, one can never go wrong.
“To be honest, much of what we are doing is speculation, but I think to reduce pressure on the Zimbabwe dollar and reduce inflation, the coins should be sold also in local currency at the willing buyer willing seller rate,” Dr Chitambara concluded.
The best part about buying gold coins for investment is that the investor does not have to worry about its maintenance to get the best returns, unlike other tangible assets. An investor can easily keep the gold coins safe at home for hundreds of years and still sell them for a good when they eventually decide to.
Price stability is an added advantage of buying gold coins for investment, analysts said, and when compared to other investment options in the market, the price of gold never falls by a significant margin and is rather always stable even during a global financial crisis.
Worldwide people look at gold as an alternative to currency, particularly where the local money is prone to lose value. Gold is a real physical asset that tends to maintain its value in the market, which, in turn, proves that buying gold coins is a good investment option.
Over the past two years, for example, the money supply in the United States has grown by more than 38 percent to about US$6 trillion, a rise that usually took decades to achieve.
Thus, a combination of the unsecured money supply from the US, rising global inflation, and fears that Washington is increasingly weaponising the US dollar to sanction other countries is driving investors to other investable assets.
While there is a shift to other global currencies, there is also a significant shift to gold.
Central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021, according to an article by Nikkei Asia.
Central banks have built up their gold reserves by more than 4 500 tonnes over the past decade, according to the World Gold Council, the international research organisation of the gold industry.
According to the Gold Bars Worldwide website, countries with gold coins include South Africa, which issues the Krugerrand gold coins, Australia has the Australian Kangaroo, the United States has the American Eagle, Canada has the Maple Leaf, Austria has the Vienna Philharmonic.