eBusiness Weekly
Tapiwanashe Mangwiro
Gold has always been an integral part of humans monetary system and a measure of how much one is worth. Why humans chose gold over every other metal, remains a mystery?
On Wednesday I had a chat with an analyst friend and like any sane Zimbabwean, the new monetary policy measures were part of the discussion.
What Tafara and I agreed on was that the Gold coins introduction was a good move that was about ten years early in the country.
Social Contract Dilemma
This is a country that has had money issues once every decade since 2000 and the trust between the Central Bank and citizens has continued to diminish by each scenario.
In the early 2000s the country ended up running the printing machine 24 hours as they tried to deal with inflation to the extent of bringing into the economy a $10 trillion bill.
This led to the decommissioning of the Zimbabwean dollar as it was known and the introduction of the ZWL as it is now known. In order to deal with the chaos, the country dollarised and went on to use the United States Dollar as the sole currency until the stock of the currency depleted.
In 2016 the RBZ introduced bond coins, which were initially said to be an export incentive but later became a currency as USDs vanished in the country.
The move went along and in 2019, the country reintroduced the ZWL as a sole currency and what followed was another run of inflation reaching 971 percent at its peak year on year and 37 percent month on month.
All this added to citizens not trusting the central bank whilst the central bank was not trusting citizens as they blamed them for the depleted stock of foreign currency in the 2010s.
The Gold Coins
Now with the lack of trust still at its peak, the RBZ has decided to introduce another store of value product in the name of gold coins.
Morgan & Co. Research Analyst Tafara Mtutu said; “This is an interesting development but it will not work as intended. The society does not trust that the Central Bank will keep its word and the bank doesn’t trust that citizens will not externalise the gold.”
We discussed different scenarios that might arise and we came up with four possible scenarios.
Basing on the information moving around government corridors the process will be that one needs USDs to buy the coin and they will get a certificate to show that they own these coins.
Inflation Conundrum
This move will not help the current inflation situation we have because we have added another demand to the already scarce USD around.
Most of our inflation is exchange rate driven and with the RBZ seemingly increasing money supply, the demand for the USD will always continue. We also have retailers that forward price in order to hedge against loss of value of the currency.
Store of value
You wouldn’t blame the citizens for not trusting the bank with its coins as before, their USDs woke up being bond notes and coins.
What guarantee do they have that such a move will not happen and they’ll be left holding “Bond Gold Coins”.
The RBZ introduced foreign currency savings accounts which generate interest income over time, but they haven’t been fully accepted by the country.
That was supposed to be a measuring tool for the central bank to see how much confidence does the country have in the monetary system.
Another Parallel Market Rate
Like everything money related in Zimbabwe this issue will continue to haunt us until we find a way to deal with this issue. As it currently looks, the guardians of the economy are struggling to deal with the dilemma.
Mtutu said; “We currently have a number of exchange rates in the country, but about 3 or 4 are major. We have the RTGS/USD, USD Nostro/USD cash, Auction Rate and Willing Buyer Willing Seller rate. With this new ‘currency’ we are most likely to see another rate.”
The belief is that there will come a time when one will take their certificate to sell their Gold Coins and the Bank will be short of cash. This is when we will have a black market for the Gold Coins being sold at a premium on the parallel market.
Thus means we will have another parallel market rate in the name of Gold Coins/USD rate.
First comment then one left.
Economist Dr Prosper Chitambara said; “The idea is noble, it has worked before in other countries and it has proven to be a good fit with storing value and hedging against inflation. We know that with Gold, one can never go wrong.
“Yes, we do have a problem of confidence and trust between the two groups (RBZ and Citizens) which will need to be ironed out quickly if we need to see this product work.
“To be honest much of what we are doing is speculation but I think to reduce pressure on the ZWL and reduce inflation, the coins should be sold also in local currency at the Willing Buyer Willing Seller rate.”
