The Reserve Bank of Zimbabwe (RBZ) yesterday released the first batch of 2 000 Mosi-oa-Tunya gold coins into the market to provide a store of value alternative to the US dollar in a development expected to reduce demand for US dollars and help stabilise the local currency.
Excessive demand for US dollars for the importation of goods as well as its other widespread use as a store of value currency has been blamed for driving volatility of the Zimbabwe dollar, with the pass-through effects of this eventually driving an inflation resurgence.
RBZ Governor Dr John Mangudya told journalists in Harare yesterday that following the introduction of the gold coins, the bank would introduce lower denomination gold coins within a month to cater to low-income buyers who may not afford the current US$1 823 per unit gold coin.
Dr Mangudya said the US dollar in Zimbabwe was being chased, especially on the parallel market, mainly for value preservation and importation of goods and services, with the excessive demand driving depreciation of the local currency and stoking resurgent inflation.
“The gold coins are an alternative investment product for those who want to store value. Gold is a safe and secure reserve asset throughout the world,” he said.
To start with, Dr Mangudya said a total of 2 000 gold coins had been released into the market at a price of US$1 823,80 each or $805 745,35 at the willing buyer willing seller rate as of Friday, July 22, 2022.
The price shall be based on the previous day’s London Bullion Market Association (LBMA), a renowned global marketplace for gold, afternoon price plus 5 percent to cover the cost of production and distribution of the gold coins.
The launch price is based on the LBMA gold price of US$1 736,95 plus 5 percent production and distribution cost.
Starting this morning, the central bank chief said the apex bank would publish the Mosi-oa-Tunya gold coin price by 8am daily.
Zimbabweans will be allowed to buy the gold coins in both local and foreign currency while foreigners can only purchase the product in hard currency.
While both individuals and corporates are allowed to buy the coins, exporters whose earnings were less than US$1 million in 2021 shall require exchange control approval to utilise the surrender portion of their export proceeds to buy the coins in foreign currency.
“For the time being banks can only receive the coins from the Reserve Bank for onward selling to their customers on behalf of the Reserve Bank and non-resident buyers shall only buy the Mosi-oa-Tunya gold coins in denominated foreign currencies,” Dr Mangudya said.
“Denominated currencies for the purpose of buying gold coins will include the British pound, the euro, Australian dollar, Botswana pula, and the rand.”
The RBZ will not allow banks to lend for purposes of buying the gold coins as this will put pressure on their ability to settle their transactions at the Reserve Bank.
Further, Dr Mangudya said the bank will not allow liquidation of blocked funds for purposes of buying the coins since the Government already has mechanisms to deal with the debts under Finance Act Number 7 of 2021.
“The coins are an investment option in order to preserve value for those with extra balances that have been used to chase (US dollar) liquidity in the market. This will put less pressure on the US dollar and stabilise the exchange rate,” he said.
According to the RBZ Governor, the benefits of the coins will filter down to the ordinary person as it means prices will slow down when the exchange rate stays stable. Stability of prices will also benefit those currently chasing foreign currency for value preservation, he said.
Holders of the gold coins will be able to use them for daily transactions with traders willing to hold them or exchange them for products, including paying the difference in value (change) if the transaction does not cover the total value of the coins involved.
Further, the gold coins can be used as collateral, meaning the holder can use them as security in order to obtain a loan from a registered credit provider.
Upon purchase from any participating agent, which may be a registered commercial bank, Fidelity Gold Refiners, Homelink, or Aurex Jewellery, one can elect to carry the gold coin or the bearer certificate.
A gold coin is made mostly or entirely of gold. Most gold coins minted since 1800 are 90–92 percent gold (22 karat), while most of today’s gold bullion coins are pure gold such as the Britannia, Canadian Maple Leaf, and American Buffalo.
Alloyed gold coins, like the American Gold Eagle and South African Krugerrand, are typically 91.7 percent gold by weight, with the remainder being silver and copper.
The gold coins have specifications that include 1-ounce denomination, material gold, 22 karats purity, a diameter of 22mm, the weight of 33.93g, round shape, serial number reeded edge, quality proof, and thickness of 2.63mm.
Qualities of the gold coins include liquid asset status, prescribed asset status, collateral acceptability, tradebility, and serial numbering while they can be sold back to the RBZ.
Further, the gold coins are being sold with accompanying bearer certificates with security features that include relief background features, numbering, guilloche pattern underground, hologram feature, variable QR (Quick Response) code, and security paper with watermark.
Economist Professor Tony Hawkins said the coins could find ready customers in companies that want to lock in value, as well as traders and some individuals with excess liquidity that is lying around.
In terms of inflation and exchange rate, Prof Hawkins said: “The coins might really work in the bank’s favour because since one can trade in it (gold coin) within the 180 days before it is eligible to be sold back to the RBZ, it is then liquid and that makes it attractive and will mop up excess balances.”
The target of the RBZ is that a month from now, they will be able to mint lower denomination coins for those with lesser disposable income. This will be based on the uptake of the high-value coins.
“We have minted more than 2 000 coins, but we have only released that number to test the market and we have the capacity to meet demand when it arises. The bank will release the coins on a demand basis going forward,” Dr Mangudya said.
Zimnat Asset Management managing director Farai Gwaka said, “What is critical is the availability of coins in the correct channel. But, the coins will help in reducing the demand on foreign currency for the store of value function.”
Mr Gwaka added that the coins also needed to be available in the right quantum because the 2 000 coins released yesterday are only worth about US$3,7 million, which remains a drop in the ocean as far as mopping up the excess liquidity in the market is concerned.
According to the RBZ Governor, the country has the capacity to meet the demand for the gold coins given it would only take a tonne to mint 30 000 coins required to wipe out virtually every cent of the Zimbabwe dollar liquidity currently available to banks.
Economist Eddie Cross said the coins were a good investment for those that want to store value in the long term.
“The coins are very reasonably priced and I doubt if the RBZ can meet demand because there definitely will be takers. Also, the fungibility of the coins will be an advantage if the coins meet this fundamental,” he said.
The coin that is sold on the market and is available will always get takers because it is a worthy investment for those looking to buy and hold, according to Mr Cross.
The coins can also be purchased using mobile bank money as the country continues to move along with innovation and ease of doing business.
In order to avoid arbitrage, the RBZ wants to have a continuous supply of the coins to the market to avoid intermittent flows.
The RBZ will, however, have the discretion to refuse to sell the coins to a person suspected to be buying for arbitrage or whose source of funds is not clear.
Banks will be required to perform due diligence in compliance with the Know Your Customer (KYC) principle since Zimbabwe is a member of the Financial Action Task Force (FATF).
The gold coins will be minted by Fidelity Gold Refiners and its agents but the first batch was produced outside the country through the agents of Fidelity Gold Refiners as a way to maximise quality.
Dr Mangudya said other economic agents in the country could create further investment opportunities by designing tradable instruments based on the coins.
“The insurance companies and banks can make more products from these gold coins. Zimnat and Old Mutual can do gold unit trusts for their clients and investment companies can come up with gold exchange-traded funds,” Dr Mangudya said.
On market instruments, Mr Gwaka said the market will definitely make investment classes around the gold coins and will most likely introduce gold coin ETFs and unit trusts.
According to the RBZ Governor, listing on the Victoria Falls Stock Exchange (VFEX) will be considered in the future after assessing the market of the coins and the modalities with the management of the bourse.