Exporters to buy gold coins exclusively in foreign currency

The Reserve Bank of Zimbabwe says all exporters will exclusively buy the Mosi-os-Tunya gold coins in foreign currency.

The coins are set to hit the market on July 25, 2022.

According to RBZ Exchange Control Directive, exporting companies shall buy Mosi-oa-Tunya gold coins in foreign currency, from their retained export portions.

However, companies with less than US$1 million export receipts can buy using their surrender portion in local currency.

“Notwithstanding this requirement, exporters whose annual export receipts in 2021 were less than US$1 million, shall require a specific Exchange Control approval to be permitted to utilise a portion of their surrender portion that is payable in local currency, to purchase the gold coins,” the apex bank said.

“Mosi-oa-tunya” gold coins, named after Victoria Falls, will contain one troy ounce of gold and can be converted into cash and traded both locally and internationally, the central bank said.

In terms of price, they will be sold at the prevailing international price of gold plus 5 percent to cover the cost of production and distribution of the coin. The London Bullion Market Association gold price will be the base on which the 5 percent cost cover be added to.

The RBZ said; “The Bank shall publish the Mosi-oa-Tunya gold coin price by 0800 hours daily, which shall be based on the previous day’s London Bullion Market Association (LBMA) PM Fix plus the cost of producing the coin.”

According to the bank, selling agents such as banks shall sell the gold coins in both local currency and United States Dollars and other tradable or denominated foreign currencies at the willing-buyer willing-seller exchange rate.

Domestic buyers such as individuals and corporates including institutional investors, will be allowed to buy gold coins in local currency or foreign currency, subject to quantity restrictions where it is deemed necessary.

On the other hand, international buyers shall only buy the Mosi-oa-Tunya gold coins in foreign currencies.

“Denominated currencies for the purpose of buying gold coins will include the British Pound, the Euro, Australian Dollar, Botswana Pula and Rand,” the circular reads.

On redemption, both residents and non-residents, will have the option to be paid in US Dollars or Zimbabwe Dollars depending on their choice. However, in an effort to make the gold coins serve their purpose, they cannot be sold within 180 days of procurement.

“At the discretion of the holder of the gold coin, the Bank or its Agents will buy back the Mosi-oa-Tunya gold coins after a vesting period of 180 days in line with the need to promote a savings culture in the country,” said RBZ.

In the meantime, local banks are not being allowed to buy gold coins for own portfolios until the RBZ sees that it now is satisfied with what has been fed in the market.

Economist Dr Tinashe Charumbira said; “The bank has done a good job in making the agents not able to buy the coins upfront as they could have hoarded the coins to the disadvantage of the goals of the RBZ.”

Asset management company Zimnat through its published opinion have given the gold coins their backing as a good investment option especially for institutional investors.

Zimnat said; “In our view, investing in the gold coins presents a good opportunity for institutional investors to increase their regulatory compliance by investing in an asset with Prescribed Asset Status.

“In addition, it allows investors to apply ZWL balances to an instrument that allows for inflation hedging and rate linked returns, that are generally uncorrelated to the performance of equity markets.”

According to Zimnat, this instrument suits investors that are looking to preserve value since gold has traditionally been a good store of value.

For investors seeking income opportunities, since the instrument can be used as collateral, there may be opportunities to work with asset managers with structuring capabilities, in order to sweat the asset.

Economist Dr Prosper Chitambara said, “The coins are a noble idea and they offer another avenue for investors to save value as gold rarely goes wrong. It is also interesting that the gold coins will be held for at least six months meaning that those who look to dispose local currency will definitely reduce money supply.”

Analysts have agreed that the coins will need to be supplied in a manner that creates a bit of scarcity in order to prop up the price of the coins in the market.

Economic analyst Tinevimbo Shava said; “The coins definitely need to be scarce in order to increase their demand power from both locals and international buyers which will help in its pricing in the market. As well the bank has done good on the holding period in order to reduce buying and dumping behavior in the market.”

Overall, the gold price lost 3 percent year on year in 2021, however, the outlook for gold for the rest of 2022 remains encouraging, with rising recession expectations expected to hold prices around current levels.

Although it is thought that slower than expected recovery in China’s economic activity may weigh down the gold price. In addition, the recent decline in price, points to a correction of the initially perceived effects of the prevailing geopolitical tensions as well as the effect of the recent rate hikes by the Federal Reserve in the US.

Despite the short-term volatility, gold has traditionally been less volatile than other types of investments over the long-term.

However, the asset management firm said the potential downside risk emanates from poor performance of gold on the international markets. Furthermore, they advise investors to be mindful of the tax implications of the instrument.-ebusiness