Gold coins go on sale today

Gold coins are set to go on sale today, as the Reserve Bank of Zimbabwe, continues on its quest to bring stability in the economy.

A core function of the central bank is to formulate and implement monetary policy directed at ensuring low and stable inflation levels. A further core function of the bank is to maintain a stable banking system through its supervisory and lender of last resort functions.

Other secondary roles of the bank include the management of the country’s gold and foreign exchange assets. While the central bank has managed to maintain a stable banking system, inflation and exchange rate instability has remained an Achilles heel.

At the last count in June 2022, inflation stood at 191,7 percent and because of a lag in response from other sectors, it is expected to spiral further in the month of July.

The runway inflation is mainly attributed to exchange rate pass-through (ERPT). This relates to the effect of exchange rate changes on domestic prices in an open economy.
The exchange rate between the local currency and the US dollar has depreciated from $108 per US$1 at the beginning of the year, to $413.43 as of Friday last week.

As a result of the pass through effects, inflation has become of major concern to the apex bank.
Following its meeting held on the 24th of June, the RBZ’s Monetary Policy Committee “expressed great concern” on the recent rise in inflation, which increased to 30,7 percent on a month-on-month basis for June 2022 thereby increasing the year-on-year inflation for June 2022 to 191.6 percent.

The Committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years.

Domestic pricing dynamics are currently driven by parallel exchange rates which are based on a thin market, which inherently has high price volatility and low liquidity, according to the central.
The RBZ blamed the falling Zimbabwe dollar on the increased demand for United States dollars, not only for local and international transactions but also as a store of value.

The central bank is thus of the view, the market needs an alternative store of value away from US dollars hence the decision to introduce “an investment instrument to assist holders to store value in gold coins”.

The gold coins will be available for sale to the public in both local currency (ZW$) and United States Dollars (US$) (and other foreign currencies) at a price based on the prevailing international price of gold and the cost of production. Experts say each gold coin will be sold at not less than US$1,600 or $660,800 at the Willing Buyer Willing Seller Exchange rate.

To buy a gold coin using the local Zimbabwe dollars, one has to forego 826 loaves of bread which is retailing at $800 per loaf.To buy the gold coin in US dollars, one has to forego 941 litres of petrol which is retailing at US$1,70 per litre.

The coins will be sold through the Bank and its subsidiaries, Fidelity Gold Refinery (Private) Limited and Aurex (Private) Limited, local banks and selected international banking partners. This means the authenticity of the gold coins will not be questioned.

Entities selling the coins shall be required to apply Know Your Customer (KYC) principles. This will ensure fraudster are kept at bay. Upon purchase, the buyer shall take physical possession of the coin and be issued with a Bearer Ownership Certificate, the RBZ said in a press statement.
“The buyer or holder of the coin may opt to place it in the custody of bankers of own choice in which case a safe custody certificate/receipt will also be issued.”

The gold coins can be easily converted to cash, and will be tradable locally and internationally. The coin may also be used for transactional purposes. Because of the prescribed asset status bestored by the central bank, institutional investors can use it to meet regulatory requirements for prescribed asset investments.

In the first quarter to March 2022, the prescribed asset ratio for pension funds at less than 4 percent was lower than the regulatory minimum of 20 percent. Another plus for the gold coins is that they can be used as security for loans and credit facilities.

In a presentation at a conference organised by CAA Business School, RBZ’s Deputy Director Economics Research sector Dr Nebson Mupunga said the gold coins are expected to provide a formal means of saving and reduce illegal trade in foreign currency thus stabilising the exchange rate.
“Let’s give the current measures a chance to take effect and assess their implications on price and exchange rate stability,” Dr Mupunga said.-ebusinessweekly