The Reserve Bank of Zimbabwe (RBZ) is planning to introduce gold coins into its monetary system to help prevent resurgent inflation and to bolster confidence among its investors and the general public in Zimbabwe’s capacity to maintain monetary stability.
Why it’s a big deal: If you recall, the government replaced the Rhodesian Dollar with the Zim-Dollar in 1970. The country’s inflation rate rose significantly from that point on, reaching an astounding hyperinflationary rate of 250,000,000% by the end of 2008.
Taking sound measures: Gold can help ensure monetary and fiscal responsibility. It helps prevent countries from printing and spending more money than it has in reserve. By restraining the money supply, a country restrains inflation.
Will it work: We’re not sure to what extent the RBZ will be pegging its monetary policy to gold, but it’s a start. Its inflation rate in 2021 stood at 98.55%, which is exceedingly high but much lower than the previous year’s rate of 557.21%.
Our thoughts: If Zimbabwe can stick to it, its move to introduce gold coins into the monetary system is one of the smartest policy shifts we’ve seen among countries today. It’s just too bad gold is treated as a “cure” rather than a mode of prevention (and that comment applies to all nations across the globe).
RESERVE Bank of Zimbabwe (RBZ) says it will be introducing gold coins as part of measures to ensure investors and the general public have alternative means to preserve value, cushioning them from the negative impact of resurgent inflation in the economy.
According to RBZ the “gold coins” that will be minted at the Fidelity Gold Refineries, “will be available through normal banking channels.
Gold is considered a safe haven against inflation and a gold coin is made mostly or entirely of gold, while most gold bullion coins are pure gold.
Studies show that gold has outperformed the inflation rate and reduced the risk by a considerable margin.
Most gold coins minted are 90–92 percent gold (22 karat).
Popular bullion coins include the American eagle, the Canadian Maple Leaf, the South African Krugerrand, the Isle of Man Gold Cat, the Australian Kangaroo, and the China Mint Panda Bear.
The proposition has the potential to have a stabilisation effect on the economy if conducted properly given the stability and value storage associated with gold.
Zimbabwe’s inflation increased to 191.6 percent and 30.7 percent on a year-on-year and month-on-month basis for June 2022 respectively which is far astride from government projections of achieving 30 percent inflation rate by end of year.
In a statement this morning, RBZ Governor Dr John Mangudya said the Monetary Policy Committee (MPC) had noted the increase in inflation with concern as it was stifling consumer demand and confidence, an undesirable position that has the potential to derail economic strides attained in the economy over the past two years.
“The Monetary Policy Committee (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,” said Dr Mangudya.
Other interventions planned by the apex bank include increasing the bank policy rate from the current 80 percent to 200 percent per annum as a way of reducing the money supply in the economy, while the Medium Term Accommodation interest rate increased from 50 percent to 100 percent per annum.
The central bank policy rate (CBPR) is the rate that is used by the central bank to implement or signal its monetary policy stance and provides an indicator of the minimum level of lending rates for banks.
The central bank has also increased the minimum deposit rate for local currency savings to 40 percent per annum from 12, 5 percent.
Time deposits minimum rate for Zimbabwe dollars was increased to 80 percent per annum from the current 25 percent.
To improve the flow of foreign currency in the economy along with fine-tuning the foreign exchange market willing-buyer willing-seller arrangement, he said the export retention thresholds would remain the same.
“The MPC resolved to maintain the current export retention thresholds across the various sectors of the economy and that 25 percent of the unutilised export receipts shall be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt of the export proceeds,” he said.
Originally published on The Herald