The Central Bank of Zimbabwe offers gold coins

The Zimbabwean Reserve Bank plans to produce gold coins so that the country’s investors can have a store of value to counter the effects of easing inflation through the economy. The United States is not the only country struggling with rapidly rising prices. Zimbabwe’s inflation rate increased from 132% in May to 191.6% in June and the Zimbabwean currency rapidly devalued against other global currencies, particularly the US dollar.

Carry gold in the form of coins.

In July, the Reserve Bank of Zimbabwe’s John Mangudya announced that the new coins made of gold  will be manufactured by Fidelity Gold Refineries Limited and will be available to the public via mainstream banking institutions.

The Zimbabwe’s Monetary Policy Committee set up by the Zimbabwean Reserve Bank decided to introduce gold coins as a tool to allow investors to store value. The Central Bank owns Fidelity Gold Refinery Limited. It acts as the sole entity for the purchase and refining of gold in the African country.

The RBZ has not announced a timetable for the introduction of the coins. The introduction of gold coins is a “welcome development” in a market starved for options to counter inflation. For a long time the market did not have many investment options and this is a new asset class. The reasoning was motivated by the need to create a tool that solves the problems of inflation in an economy where purchasing power has been eliminated.

Gold standards help hedge against inflation and geopolitical risks, and gold coins open up the gold market to “ordinary investors.” It is typical of central bankers to try to solve a problem it created this way. Zimbabwe has been operating under a very inflationary policy for a long time. Zimbabwe’s central bank has been compounding its economic woes by printing more new money, reversing the gains of the past two years. Inflation has fallen from a peak of 800% in 2020 to 60% in January this year.

Zimbabwean investors have surprisingly turned to the US dollar as a store of value. However, the U.S dollar has its own problems with inflation, however, the US dollar is not as clean. One US dollar sells for 650 Zimbabwean dollars on the Zimbabwean black market.

The availability of gold coins is likely to reduce pressure on the US dollar in Zimbabwe . This is because gold is a better store of value over the long term than any other fiat currency. It has no counterparty risk and central banks cannot create it out of thin air. Economists believe that the Central Bank of Zimbabwe can use the gold coins to reduce inflation if it sells the gold coins for Zimbabwean dollars.

This will help remove some of the excess money from the economy. But currencies were previously indexed to US dollars. It will basically act as a method of raising funds for the Central Bank of Zimbabwe to withdraw the USD from the market. Zimbabwean economic analysts believe that these gold coins are likely to leave Zimbabwe. Some gold buyers have reported buying these gold coins therefore they truly are a tradeable coin.

Source 1: https://www.investopedia.com/ask/answers/042415/what-impact-does-inflation-have-time-value-money.asp

Source 2: https://theexchange.africa/countries/reserve-bank-of-zimbabwe-to-introduce-gold-coins/

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