Gold coins: RBZ chief sheds more light

Gold coins set to be released by the Reserve Bank of Zimbabwe (RBZ) tomorrow are expected to mop up excess cash on the market over the next six months, reduce demand for the US dollar as a store of value and stop the depreciation of the local currency, RBZ Governor Dr John Mangudya has said.

In an interview with The Sunday Mail, the central bank chief said the gold coins, which are known as Mosi-oa-Tunya, can only be redeemed for cash after 180 days.

Monetary authorities have also made an undertaking to support trading of the coins in local currency to tame exchange rate volatility and ensure price stability.

Demand for foreign currency is understood to be driven by rising demand by importers and lingering fears of hyperinflation.

"Because of hyperinflation and past experiences, people in Zimbabwe have increased demand for foreign currency as a store of value," said Dr Mangudya.

"So, in order to provide an alternative product for those who want to store value, including those with excess balances and those who have foreign currency under their pillows, we have introduced the gold coin.

"Its first positive impact is that it provides a safe and secure investment for those living in perpetual fear of hyperinflation and losing value."

Stabilisation of the local currency, he said, was at the centre of the new initiative.

It is believed absorption of excess liquidity would reduce "the standing power of local money which goes to the parallel market and sterilise the local currency".

"By doing so, we are stabilising the exchange rate.

"As we stabilise the exchange rate, the prices will not go up."

Local retailers and manufacturers are largely using the parallel market exchange rate to peg their prices.

"So we are stabilising the exchange rate and, by extension, we stabilise the currency and reduce the amount of money that is chasing the parallel market.

"In terms of the amount of gold coins that are going to be released in the first batch, we are not in a position to share that information. However, they are sufficient.

"We will only be able to give you information after the beginning of the first week," he said.

Economist and member of the Monetary Policy Committee (MPC) Mr Persistence Gwanyanya said gold coins were an alternative investment that foster stability and reduce inflation.

"By removing the local currency from the system for six months, we are cutting out and reducing the amount of liquidity circulating in the economy," he said.

"For example, if you are going into the parallel market to buy US$600, you are now able to buy a store-value product at an even lower price than in the parallel market. So, by doing so, we enhance the value of the local currency."

Economic analyst Mr Eddie Cross said authorities must, however, guard against creating arbitrage opportunities in the market.

But the RBZ says selling the gold coins exclusively in US dollars will be go against objectives of what policymakers want to achieve.

Dr Mangudya said: "If we sell it in foreign currency, what are we trying to achieve? The local currency is the Zimbabwe dollar and that is what we want to strengthen.

"We are providing people with a product that will give them peace of mind.

"We cannot, therefore, say we do not want to strengthen our local currency because of arbitrage.

"We cannot leave our currency unattended. It is a functional currency and we want to stabilise it."

The gold coins will be sold at a price based on the prevailing international price of gold plus a 5 percent mark-up to cover production and distribution costs.

The Mosi-oa-Tunya will also be traded through commercial banks, Fidelity Gold Refinery and RBZ-accredited agents.

On redemption, buyers will have an option of receiving cash in either Zimbabwe dollars or US dollars.