THE successful introduction of gold coins as a store of value could be hampered by a lack of public trust in the country’s monetary system, analysts say.
NYASHA CHINGONO
Faced with growing inflation, which more than doubled between May and June to 192%, the monetary authorities are in fix to save the moribund currency which has been sliding against the US dollar over the past months.
Commentators say while introducing the gold coins could help preserve value and reduce the demand for US dollars on the market, public confidence could derail the new measures.
Analyst Rashweat Mukundu said Zimbabweans were adopting a cautious approach to the current measures as previous monetary policy measures had left many poorer.
“The key issue with the Zimbabwean economy is lack of trust. This is the first time Zimbabwe is initiating the preservation of value by selling gold coins. The question is: Has enough been done to educate the public on the purchase of the gold coins? There is huge lack of trust of the monetary authorities and the banking sector,” Mukundu said.
The introduction of gold coins has stoked fears of policy inconsistencies that have wiped out savings and pensions in the past.
In 2015, Zimbabweans who held bank balances when the Zimdollar was decommissioned in 2009 were given as little as US$5, meaning many lost their life savings.
In 2018, the government introduced bond notes, initially meant to be an export incentive and pegged at 1:1 with the US dollar but, within months, the bond notes lost value against the greenback, resulting in the erosion of savings.
Analysts and Zimbabweans who spoke to The NewsHawks say the government has not earned much trust to warrant a buy-in from the public.
“There is a clear lack of knowledge among the general populace on what the gold coins mean and whether they can trust the same system with their money that has cheated them repeatedly over the years,” Mukundu said.
On the streets of Harare, the introduction of gold coins has been met with suspicion.
Currency traders fear they will not make much money as people will not demand the US dollar as a store of value.
“On top of the mistrust we have with the monetary system, which has changed overnight over the years, our foreign currency trading could be under threat if everyone goes for these gold coins,” Terrence Musareka (35), a foreign currency trader, said.
Broadwell Masuku, a 64-year-old pensioner who lost his saving in 2008, said it is difficult to trust the government with money.
“They must promise the public that there will be restitution of money lost if there is loss of money or value. When you are buying this thing, you are literally exchanging your money in exchange for a paper, surely our government must operate on a higher moral standard and give people what is due to them,” Masuku said.
Mukundu weighed in, saying the government needs to clearly explain the modalities regarding the liquidation of the gold coins.
“The loophole is in terms of trust then there is no explanation as to whether it appreciates in value, how long does it take to redeem it? It is a very hurried move to create diversion on its failure to contain inflation,” Mukundu said.
Central bank governor John Mangudya said in a statement on Monday that the coins would be available for sale from 25 July in local currency, US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production.
The Mosi-oa-Tunya coin, named after the Victoria Falls, can be converted into cash and traded locally and internationally, the central bank said.
The gold coin will contain one troy ounce of gold and will be sold by Fidelity Gold Refinery, Aurex and local banks, it added.
Gold coins are used by investors internationally to hedge against inflation and wars.
Last week, Zimbabwe more than doubled its policy rate to 200% from 80% and outlined plans to make the US dollar legal tender for the next five years to boost confidence.
Soaring inflation has been piling pressure on a population already struggling with shortages and stirring memories of the economic chaos during Robert Mugabe’s 37-year rule.
Economist Prosper Chitambara said the introduction of gold coins may not rein in inflation.
“it is not the panacea to the inflation problem. Inflation is mainly caused by the increase in money supply growth. Which has been unsustainable,” Chitambara said.
However, he added that the use of gold would help restore confidence in investing in the economy as gold remains a stable commodity.
“The major role is to act as a store of value and the value of gold has always been stable. It has also been increasing even when the global economy is in recession, so it is a viable option for investors. The expectation is that the introduction of the gold coins will alleviate the demand for US dollars,” Chitambara said.
The Confederation of Zimbabwe Industries said: “The introduction of gold coins as a store value is a welcome development, provided the gold coins will be sold in Zimbabwe dollars so that the demand for the US dollar as a store of value will also shift to the gold coin, which relieves pressure on the exchange rate.”
