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Fighting inflation: Zimbabwe introduces gold coins as an alternative store of value to the dollar

Economist Prosper Chitambara warned that most Zimbabweans are too poor to afford the new currency.

The Reserve Bank of Zimbabwe released gold coins for sale on Monday to the public in an attempt to control high inflation rates and to boost confidence in the local currency.

One troy ounce metal coins are called Mosi-oa-Tunya, the name of Victoria Falls in the local Tonga language, and will fall as an alternative store of value to the US dollar, whose high demand is attributed to the depreciation of the Zimbabwean dollar.

According to the Central Bank of the African country, quoted by AP, the currency may be “easily converted into cash and shall be negotiable locally and internationally “, as well as being used as collateral for loans and credit facilities. However, the institution indicated that they can only be exchanged for cash after 180 days from their acquisition.

As for its price, it will be determined by the international market price of an ounce of gold, plus 5% of the cost of producing the coin. At the time of its release, it sold for $1,824.

On Monday, the central bank disbursed 2,000 coins to commercial banks local. The first batch was minted outside the country, but according to Reserve Bank of Zimbabwe Governor John Mangudya, they will eventually be produced on Zimbabwean soil.

Instead of people “going to the parallel market to look for dollars, we are giving them an alternative product in which can invest, Mangudya said this month, quoted by local media. It should be noted that the population’s confidence in the Zimbabwean dollar is so low that goods and services are mainly quoted in the US currency.

Furthermore, he pointed out that if the market for parallel currency stabilized, “money will have value and will result in stable prices.”

Skepticism among economists

However, economists were skeptical about the Government’s measure. “The currency will not have a significant effect in terms of stabilizing the macro economy,” said Prosper Chitambara, warning that most Zimbabweans are too poor to afford the new coin.

Internationally, gold coins are used in countries such as China, South Africa, and Australia to hedge against inflation and as an investment opportunity, although not as widely used as a currency as the Zimbabwean central bank envisions, warned Chitambara.

For his part, the economist Gift Mugano described the economic decision as a setback and encouraged paying attention to digital currencies. “It seems like we’re going back to the 19th century when people traded gold,” he said. “We need to focus more on digital finance,” he added.

Meanwhile, inflation in the African country reached 191% last month, evoking memories of the hyperinflation of the 2000s, which saw three redenominations and the printing of a 100 trillion Zimbabwean dollar note and eventually led to the rejection of the Zimbabwean dollar in 2009. The currency was reintroduced in 2019 but its value fell rapidly again.

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