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Zimbabwe launches gold coins as legal tender to tackle hyperinflation

In an attempt to combat chronic hyperinflation, Zimbabwe launched new gold coins that can be sold to the general public.

According to the Reserve Bank of Zimbabwe, the gold coins, called Mosi-oa–Tunya, will be “liquid assets status”, which means they can be converted into cash, traded locally or internationally and used for transactions.

After holding the coins for at least 180 days, you can trade them for cash.

Prosper Chitambara, a Zimbabwean economist, stated that the government was trying to reduce the high demand for the US Dollar because the supply is not meeting this demand.

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According to the International Monetary Fund (IMF), inflation in Zimbabwe was 837% year-on-year in July 2020. Although it fell to 60.7% at the end of 2017, tighter fiscal policies helped to reduce it to 60.7%. However, it still remains high in the double digits.

This causes people to lose their savings. Many people saw their savings disappear due to the 5 billion percent inflation in 2008. According the IMF, many people lost their savings.

This insecurity has a negative impact on trust in Zimbabwe’s local currency, the Zimbabwe Dollar. Many retailers won’t accept it. Many Zimbabweans prefer US dollars for daily transactions and savings.

More information about Zimbabwe


‘Chronic hyperinflation’

Mr Chitambara stated: “For Zimbabwe, we are in chronic hyperinflation so there is an expectation that there will be an enormous uptake of these coins.”

These coins have a purity level of 22 carats and will be priced according to the international market rate of one ounce of pure gold plus 5% for production and distribution.

However, this price could make it impossible for many people to afford them in a country where a third of the population lives in poverty.

The cost of a Mosioa-Tunya Coin at the time of Monday’s launch was US$1,824 (PS1,514)

“The common man doesn’t really have much to gain directly from this, especially if he doesn’t have excess cash,” stated Mr Chitambara.

“Many people don’t have enough money to buy bread or save for the future.

“The expectation is that it will indirectly benefit the average person through moderating prices.”


Concerns about increased smuggling

There are also concerns that the new coins may increase gold smuggling.

Zimbabwe is home to large gold reserves and the export of this metal is one of its major foreign currency earners.

Smuggling is a widespread problem. While all gold produced in the country must be sold to the central banking, many producers would rather have it moved overseas in order to receive payment in US dollars.

Morgan & Co, a securities firm, stated in a market intelligence study: “Gold deliveries have significantly recovered in Zimbabwe because of the appetizing US dollar payments made to artisanal miners.

“But, if there is a difference between the amount used to buy the gold from miners, and the US dollar used to pay the coins, it could lead to a squeeze on the central bank’s foreign currency reserves and its intermediaries.

“If this happens, it could cause artisanal miners to become more concerned about gold smuggling and low Fidelity Printer deliveries.”

Fidelity Printers is a subsidiary bank that is authorized to buy gold in the country.

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