WAY back in August 2009, former Reserve Bank of Zimbabwe (RBZ) Gideon Gono(pictured) proposed the return of the local dollar after it had been practically demonitised with the introduction of the multicurrency system by government in February that year in a bid to tackle hyperinflation and ensure macroeconomic stabilisation.
“What I’m calling for is a guarded reintroduction of the Zimbabwe dollar where such a currency will be fully backed by credible, tangible and locally available assets such gold, diamond or platinum,” Gono said.
However, then Finance minister Tendai Biti under the Government of National Unity flatly rejected the proposal: “The Zimdollar is dead and buried”. This week the RBZ announced the introduction of gold coins into the market as a store of value. In a statement following a meeting of the bank’s Monetary Policy Committee on June 24, RBZ governor John Mangudya also announced a series of measures meant to curb inflation.
“The 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,” he said.
Mangudya, Gono’s predecessor, said the MPC had expressed great concern over the recent surge in inflation, which climbed to 191.6% for June, from 131.7% the previous month year-on-year. The issue of introducing gold coins or gold-backed currency is not new in the market. The debate has been going on years now.
Only last week, before the RBZ announcement, South African-based Zimbabwean-born currency expert Colls Ndlovu, who worked for the South African Reserve Bank and wrote books titled (i) Trimetallism, and (ii) Gold Currency”, suggested a “trimetallic monetary system comprises of gold, platinum and silver operating as concurrent currencies within the economy”.
“The adoption of the trimetallic currency system for Zimbabwe will not only solve the country’s ongoing currency conundrum, but will also help the country to reduce its hyperinflation down to below 2% levels, while at the same time enhancing the standards of living of the people,” Ndlovu said.
“The investment community, both domestic and foreign, will find Zimbabwe to be a highly competitive investment destination powered by the trimetallic currency standard which will be immune to the capricious market volatilities. The trimetallic currency system will safeguard the economy against inflation, especially against its more deleterious variant: hyperinflation.”
However, an economics and market intelligence report done by Morgan & Co says despite multifaceted measures taken by the RBZ, including introducing gold coins, inflationary pressures will persist due to costpush factors.
The measures included increasing the bank rate from 80% to 200% per annum, among other related things, liquidation of unutilised retained export receipts and introducing gold coins.
“In the light on the above-mentioned measures and implications, we believe inflation trends will prevail due to cost-push pressures in the form of higher costs; civil servant wage increases, low confidence in the ZWL (Zimdollar), significant hard currency demand to support imports of wheat, maize, basic goods and inputs for local manufacturers as well as government-related infrastructure projects,” the paper said.
“Overall, we opine that the main objective of the measures is tap into large nostro balances in the country. The measures do not address the fundamental issues affecting Zimbabwe’s hard currency generation capabilities and economic stature.”
On gold coins, the research says “gold coins can only offer a store of value, but only if trust is preserved”.