Gold coins: while some say its a milestone, financial expert foresees disaster
On the 27th of June 2022, the finance ministry announced that Zimbabwe was introducing Gold coins saying it was a more stable and a much more trustworthy way to store value.
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Reserve Bank governor said gold coins will be introduced into the market as an instrument that will enable investors to store value.
“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 (Private) Limited and will be sold to the public through normal banking channels,” Mangudya said.
He said that the MPC had expressed great concern over the recent rise in inflation, which increased to 30.7 per cent on a month-on-month basis for June 2022, thereby increasing the year-on-year inflation for June to 191.6 per cent.
“The committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years,” he said.
In that regard, the MPC resolved to put in place measures to align the interest rates with the inflation developments and enhance the circulation of foreign exchange, on top of the introduction of gold coins.
What are gold coins
A gold coin is a coin that is made mostly or entirely of gold. Most gold coins minted since 1800 are 90–92% gold (22 karat), while most of today’s gold bullion coins are pure gold, such as the Britannia, Canadian Maple Leaf, and American Buffalo. Alloyed gold coins, like the American Gold Eagle and South African Krugerrand, are typically 91.7% gold by weight, with the remainder being silver and copper.
Reaction
Mines and Mining Development Minister
Mines and Mining Development Minister Winston Chitando said the Reserve Bank of Zimbabwe (RBZ)’s initiative to introduce gold coins was a milestone for Zimbabweans to invest and save their currency using the precious metal.
“What it means is it gives the ability to the Zimbabwean population to be able to invest in gold.
“If someone has some cash, one of the instructions that he or she can consider is gold coins. The gold coin is very interchangeable and very easy to market.
“You can buy and sell it so it is much easier. We are always traditional in terms of saving looked at in the financial sector which is the savings account, and current account in the entire stock market but right now you could go to coins.
“It gives the ability for Zimbabweans to be able to invest in gold. It is a very key achievement,” the Minister said.
@miningzimbabwe Mines Minister says ma gold coins ndizvo
Lyman Mlambo – Mining Expert
According to top mining expert, mineral economist and former Chairman of the Institute of Mining Research at the University of Zimbabwe Mr Lyman Mlambo, the introduction of gold coins will be a better alternative for holding assets in the country’s high inflationary period.
“This is quite an interesting phenomenon. The Bond Notes themselves, as a legal tender (money), also play the function of store of value, besides being a medium of exchange, unit of accounts and means for settling debts. However, the problem with Fiat money is that it is an elastic store of value (because of inflation) and hence cannot preserve the asset value in times of inflation or economic uncertainty. That’s where gold coins make a difference because they have intrinsic value (gold is a commodity in itself). That indeed makes it a far better store of value than Bond Notes, even better than hard currency (US$, etc) because in times of global crisis or uncertainty asset holders prefer gold to US$. Thus, the coins certainly will be a better alternative to holding assets in these inflationary times,” Mlambo said.
Financial Expert – Tinashe Murapata
Popular financial expert Tinashe Murapata who describes himself as an Entrepreneur with a deep interest in Economics and an even deeper interest in Zimbabwe foresees disaster with the gold coins’ move.
Speaking on his twitter account Murapata said Gold miners will be forced to accept ZWL or local nostro USD soon, as the Reserve Bank doesn’t have reserves to sell gold to Zimbabweans.
“Gold miners will be forced to accept ZWL or local nostro USD. Worse, they’ll not have USD to import chemicals. The ZWL rate will be worse as the usual suspects get more ZWL to buy gold”.
“RBZ doesn’t have reserves to sell gold to Zimbabweans. Every gold export has been very useful in importing products. The common man, even under Keynesian thought will not keep gold coins. It’s the speculator with access to ZWL , local nostro or subsidized USD who will hoard”.
“It’s as if GOZ has forgotten a time when gold production fell to 4tonne in a year. Pricing distortions eventually affect the supply side. This isn’t rocket science. I can’t imagine anyone from RBZ coming up with such a hare brained idea.
“It hasn’t been well thought out. Once the first coins are minted, unless there is a steady supply those coins must appreciate in value given limited supply. Hence why it’s a Ponzi scheme. To increase the supply of the coins means forcing gold producers to accept ZWL,” Murapata said.