(Kitco News) Zimbabwe’s plan to sell gold coins to tame inflation is a missed opportunity to build better gold reserves, according to the International Monetary Fund (IMF).
Over the summer, Zimbabwe’s central bank began selling gold coins to fight inflation. The idea was that the gold coins would provide a store of value for the country’s plummeting currency and give people an alternative to the US dollar.
The 22 karat one troy ounce gold coins named “Mosi-Oa-Tunya”, which means “smoke that thunders” in reference to Victoria Falls, have been very popular. After the first week of launch, at the end of July, the country’s central bank sold 1,500 gold coins.
Each gold coin has a serial number and can be purchased with local currency, US dollars and other foreign currencies. The price is set according to the international price of gold and production costs. This week, each gold coin cost $1,755, according to the central bank’s website.
The owners of the coins can convert them into cash or make an exchange when needed. Gold coins could also be used as legal tender to conduct transactions or as collateral for loans.
The aim is to depress the demand for US dollars following the collapse of the Zimbabwean dollar. Earlier, Zimbabwe revealed plans to adopt the US dollar as legal tender for the next five years to stabilize the country’s exchange rate. This is the second time in over a decade that Zimbabwe has legalized the greenback as legal tender.
Soaring inflation and currency devaluation have made things difficult for the people of Zimbabwe. The country’s annual inflation accelerated by 285% in August. In response to the crisis, the central bank of Zimbabwe more than doubled its key rate from 80% to 200%, a new record.
But the IMF sees a missed opportunity on the side of gold reserves. “The sale of gold coins has helped draw Zimbabwean dollar liquidity out of the market, although it represents an opportunity cost in terms of foregone reserves for the Reserve Bank of Zimbabwe,” Bloomberg said Thursday, citing an IMF spokesperson.
Earlier in the week, the IMF noted that Zimbabwe’s monetary policy measures were contributing to the devaluation of the currency. “The recent tightening of monetary policy and the control of budget deficits are policies that go in the right direction and have contributed to reducing the exchange rate differential in the parallel market,” the IMF said on Monday.
Due to the popularity of one-ounce gold coins, the country’s central bank is also working to release tenth-ounce coins.
The idea of the gold coin also inspired the country to try to induce the country’s largest gold miners to produce beyond the state’s planned targets.
Large miners are encouraged by the government to produce more gold. And those who exceed their targets can receive 80% of the additional production payment in foreign currency. The current payment plan is a 60-40 split between foreign and local currency payments.
Zimbabwe’s gold production has already increased by 47% this year as the government seeks to mine gold to account for a third of the overall mining industry by 2023, aiming for $12 billion in revenue.
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