Gold coins: So far so good but…

August 4, 2022

The Reserve Bank of Zimbabwe (RBZ) said this week that it had sold 1,500 gold coins since they became available more than a week ago.

So encouraging has been the uptake that the central bank will put an additional 2000 gold coins for sale to capitalise on the huge demand.

According to the central bank chief, 85% of the gold coins that were released in the first batch were sold in local currency and the remainder in foreign currency.

That the bulk was sold in local currency should be sweet news to monetary authorities which want to mop excess local currency balances, blamed for fuelling the parallel market leading to the routing of the local currency.

The net effect of that has been a quickening inflation with the government’s measure of the rise in prices of goods and services over a period of time racing to 256.9% in July from 191.7% in June.

The gold coins have liquid asset status, prescribed asset status, can be used as collateral, tradable and can be bought at the instance of the holder.

On redemption, both residents and non-residents (international buyers), will have a choice to request payment in (US$) or (ZWL$).

Monetary authorities see the gold coins as providing an investment avenue which is a store of value and reduces activities on the parallel market.

They see the gold coins as triggering new products such as unit trusts that pension funds and insurance companies can invest in gold coins to protect policyholder funds from inflation.

This should jolt the regulators into action by coming up with guidelines on which class the gold coins fit into, especially for players in the insurance and pensions industry.

The Zimbabwe Association of Pension Funds said last week that it was waiting for direction from the Insurance and Pensions Commission on how they should invest in gold coins.

The ball is in the court of monetary authorities to ensure that what it says will be followed to the letter. For instance, if one wants to dispose of the coins, they should do so freely within the laws and not to be told that they should sell at a discount.

That alone will kill the confidence that would have been garnered. Gold coins have the potential of taming inflation through stabilising the exchange rate.

However, that depends on a number of measures and monetary policy alone cannot fight the inflation dragon.

Fiscal authorities have to step in and continue cutting the coat according to the size of the cloth, especially as the nation gears for the 2023 polls where fiscal prudence could be a casualty.

Monetary authorities have maintained a tight monetary stance in its inflation fight and say its thrust will be buttressed by a favourable uptake of gold coins which were introduced on July 25.

In terms of the uptake of the gold coins, it’s so far so good.

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