RBZ to introduce gold coins, hikes bank policy rate

THE Reserve Bank of Zimbabwe (RBZ) says it will introduce gold coins as part of measures to provide investors and the general public alternative means to preserve value and hedge against the negative impact of resurgent inflation in the economy.

According to RBZ the “gold coins” that will be minted at the Fidelity Gold Refineries, “will be available through normal banking channels.

Gold is considered a safe haven against periods of economic turmoil, especially inflation increases, and a gold coin is made mostly or entirely of gold, while most gold bullion coins are pure gold.

Studies show that gold has outperformed the inflation rate and reduced the risk by a considerable margin. Most gold coins minted are 90–92 percent gold (22 karat).

Popular bullion coins include the American eagle, the Canadian Maple Leaf, the South African Krugerrand, the Isle of Man Gold Cat, the Australian Kangaroo, and the China Mint Panda Bear.

The proposition has the potential to have a stabilisation effect on the economy if conducted properly given the stability and value storage associated with gold.

Zimbabwe’s inflation increased to 191,6 percent and 30,7 percent on a year-on-year and month-on-month basis for June 2022 respectively which is far astride from government projections of achieving 30 percent inflation rate by end of year.

In a statement yesterday, RBZ Governor Dr John Mangudya said the Monetary Policy Committee (MPC) had noted the increase in inflation with concern as it was stifling consumer demand and confidence, an undesirable position that has the potential to derail economic strides attained in the economy over the past two years.

“The Monetary Policy Committee (MPC) resolved to introduce gold coins into the market as an instrument that will enable investors to store value.

“The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels,” said Dr Mangudya.

Other interventions planned by the apex bank include increasing the bank policy rate from the current 80 percent to 200 percent per annum as a way of reducing the money supply in the economy, while the Medium Term Accommodation interest rate increased from 50 percent to 100 percent per annum.

The central bank policy rate (CBPR) is the rate that is used by the central bank to implement or signal its monetary policy stance and provides an indicator of the minimum level of lending rates for banks.

The central bank has also increased the minimum deposit rate for local currency savings to 40 percent per annum from 12,5 percent.

Time deposits minimum rate for Zimbabwe dollars was increased to 80 percent per annum from the current 25 percent.

To improve the flow of foreign currency in the economy along with fine-tuning the foreign exchange market willing-buyer willing-seller arrangement, he said the export retention thresholds would remain the same.

“The MPC resolved to maintain the current export retention thresholds across the various sectors of the economy and that 25 percent of the unutilised export receipts shall be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt of the export proceeds,” he said.

Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer Christopher Mugaga said the introduction of gold coins by the RBZ was a reflection that the central bank was actively looking for ways to tame the raging inflation albeit being a convenience measure.

“Gold coins are a convenience measure not a fundamental measure and we believe central bank is trying by all means to align its policies with realities on the ground, what we hope and need is for the fiscal side to continue to maintain discipline, not creating a hole which will be difficult to fill, because the only way to deal with that hole will be monetising a process we know will lead to the printing of money which we should not do,.

On the stance to increase the bank policy rate Mr Mugaga said the central bank was doing all it could to curb the rising inflation which has been fuelled mainly by arbitrage and speculative behaviour.

“The central bank is just trying to be as realistic as possible, given the real dynamics in the economy by adjusting the interest rates upwards, they are just trying to tame the arbitrage and realign the economy alongside all other sectors of the economy outside the monetary sector.

“I think the RBZ is alive to the realities regarding the inflation outlook, which is quite grave in the short term, inflation numbers are facing upwards and interest rates is where it all begins,” he said. Economist Professor Gift Mugano said gold coins would be a positive move given that pressure to spend on buying US dollars for hedging will be minimised given that individuals or companies will have an alternative commodity to store their monetary value in.

“The introduction of the gold coins looks like a good instrument which can be used to mop money supply because we are assuming that there is a lot of money on the market, so people instead of buying foreign currency they will buy gold coins and in that way you will avoid speculation and rise in USD terms because of that new currency, but it requires clarity on the pricing regime,” said Prof Mugaga.

However, he said an increase in bank policy rate, despite being inhibitive to speculative borrowing, was inflationary particularly to productive sectors as they will understandably factor in the cost of loans.
“Increase of bank policy rates is inflationary, it is a given that it will reduce speculative borrowing but the cost which comes with it is inflation because if I am a legitimate borrower and I want to do production, I will have a cost-push inflation coming on the back of that interest rate, we have to bear with inflation coming out of the increase in bank policy rates.”-The Herald