Economists react to Mangudya’s gold coins

Economists react to Mangudya’s gold coins

Economists react to Mangudya’s gold coins

By Tadiwa Masiyiwa

The Reserve Bank of Zimbabwe (RBZ) is set to introduce gold coins into the market as an instrument that will enable investors to store value.

These gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.

However, the introduction of the coins has drawn mixed reactions from economists in the country.

Gold coins are a smart concept for storing value or providing the market with alternatives to the United States Dollar because they have an intrinsic value of the foreign currency.

In an interview with Open Parly, economist Victor Bhoroma said the introduction of gold coins can reduce pressure on the USD if they are sold in RTGS but with a face value in USD.

He is however of the view that the coins will likely be indexed in USD which means it can be a fundraising scheme to get USD from the market by the central bank.

Bhoroma added that the success of the coins will depend on confidence in the central bank as the seller of the coins and guarantor that backs them.

“If confidence continues to dip, the market will maintain a preference for hard currency. The value of the coin cannot fall far below the market value of the gold, hence there must be parallel incentives to ensure the market salivates for the coins. Overall, the secondary market will be rich if there is confidence in the central bank and low money supply growth,

“Zimbabwe’s economic problems lie in the failure by the RBZ to create a market-determined exchange rate and reign in on money supply growth which is leading to high levels of inflation.

‘’Therefore, the gold coins might not stabilise the market or bring informal players to the table as the informal market prefers USD cash which can be liquidated easily and stays outside the formal market.

‘’So, the gold coins might create a buzzing secondary market such as that of Bitcoins, but it will not solve Zimbabwe’s main challenges to do with the cost of living and economic instability” said Bhoroma.

Another economist Farai Mutambanengwe stated that these gold coins will eliminate the ZWL liquidity originating from reduced borrowing.

“The gold coins will be an instant hit and will probably sell at above par as people dump ZWL in favour of them. So, the supply factor for those will be critical.

‘’They will probably mop up the ZWL liquidity emanating from reduced borrowing. This might actually be a smart move from a liquidity management point of view. I would recommend anyone with surplus cash to just buy those,’’ he said.

According to Mutambanengwe, it would be crucial for the central bank to ensure that everyone is only able to purchase the gold coins using ZWL only and not USD.

Economists react to Mangudya’s gold coins