Gold Coins Help Zimbabwe to lower Inflation

By Swann Collins, investor and consultant in international affairs – AssetsforWealth, March 3, 2023

The Reserve Bank of Zimbabwe recently revealed that some 25,188 of its gold coins were sold between July 2022 and January 13, 2023. According to the central bank governor, John Mangudya, the gold coins “have proved to be an effective open market instrument for mopping up excess liquidity in the economy.”

According to the Zimbabwean central bank, about 25,188 “Mosi-oa-Tunya” gold coins valued at over $28 million (ZWD$20 billion) were sold between July 2022 — when the coins were initially introduced — and January 13. From this total, acquisitions by the so-called corporates accounted for 84% “while purchases by individuals accounted for 16%.”

Plagued with hyperinflation since 2007, the government of Zimbabwe decided to strengthen the Zimbabwean dollar starting the sale of gold coins in July 2022, as we reported then.

Hyperinflation in Zimbabwe began in February 2007. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe’s hyperinflation because the government stopped filing official inflation statistics.

Initially launched to act as “an alternative retail investment product for value preservation,”, the central bank said lower denomination gold coins introduced in November 2022 “accounted for 38% of all sales.

Commenting on the gold coins’ impact since their introduction, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said:

The coins have proved to be an effective open market instrument for mopping up excess liquidity in the economy and a retail investment product for preserving value for investable funds.

The gold coins are minted by Fidelity Gold Refineries (Private) Limited. Founded in 1978 and fully owned by the Reserve Bank of Zimbabwe, the company is the sole gold buying entity and refining entity in the country.

The new gold coins weigh one troy ounce and are made of 22-carat gold. Each coin costs the price of one gold troy ounce. The coin was called “Mosi-oa-Tunya”, which means “rumbling smoke” – this is how Victoria Falls is called in the language of the local Lozi people.

The value of each coin is equal to the price of an ounce of gold plus 5% to cover the cost of minting. 

The RBZ governor added that the coins, which have a 180-day vesting period, along with the bank’s high-interest rate policy, played a part in stabilizing inflation and the local currency’s exchange rate versus the greenback.

According to the local statistical office, Zimstats, the African country’s month-on-month inflation fell from a high of 30.74% in June 2022 to 1.1% in Jan. 2023. Despite this slowdown, Zimbabwe’s latest annual inflation rate of 230% remains one of the highest globally.

Thanks to the gold coins released by the Zimbabwe’s central bank since July 2022, the month-on-month inflation rate in February 2023 was – 1.6 percent shedding 2.3 percentage points on the January rate of 0.7 percent, reported the Zimbabwe National Statistics Agency (ZIMSTAT). Annual inflation for February also declined to 92.3 percent from 101.5 percent the previous month.

Concerning the Zimbabwean dollar’s exchange rate versus the U.S. dollar, the latest RBZ data suggests that the parallel market premium dropped from a high of nearly 100% on July 1, 2022, to well under 50% by Dec. 19, 2022. As shown by the data, the local currency’s auction market exchange rate, which stood at just over ZWL100:USD1 on Jan. 11, 2022, closed the year at approximately ZWL700:USD1. According to the RBZ data, the local currency’s parallel market exchange rate on Dec. 19 stood at approximately 900:1.

Meanwhile, in his 2023 monetary policy statement, RBZ governor Mangudya said the bank “will continue to avail gold coins on a demand-driven basis as it seeks to promote a savings culture.”

On March 3, the government announced that Zimbabwe will from now on measure inflation using a weighted average of items priced in Zimbabwean dollars and U.S. dollars.

The issue of gold coins has already started to remove pressure on the national currency, cooling inflation and allowing citizens to hope for easier daily expenses. You will learn more about the use of gold in economies, by purchasing my book:

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© Copyright 2023 – Swann Collins, writer, investor, and consultant in international affairs.

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