The central bank has ignored advice from the International Monetary Fund (IMF) over gold coins saying they will remain in place as they have contributed to exchange rate and price stability.
Government introduced gold coins in July as an open market operation to suck out excess local currency balances that were blamed for fueling the parallel market for foreign exchange leading to the rout of the Zimbabwe dollar.
The gold coins also serve an alternative retail investment product for value preservation in the dual currency system.
In his monetary policy statement RBZ governor John Mangudya said the use of gold coins as an open market instrument for managing liquidity would continue as part of the central bank’s sterilisation interventions to achieve a stable exchange rate.
“The Bank has no plans to withdraw the gold coins in the short and medium term until such a time when stability starts to create a high appetite for business and consumers to hold domestic currency denominated assets,” Mangudya said.
“As such, the issuance of both higher and smaller denominations of gold coins will continue as an open-market operation instrument and investment instrument for value preservation.”
In its annual Article IV Consultation report, IMF said the central bank has to restore the effectiveness of monetary policy, including through the “use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins”.
Mangudya said the gold coins have been well received with 25 188 coins valued at ZWL$20bn having been sold as at January 13, 2023. The bulk of gold coins, 84%, were bought by corporates while purchases by individuals accounted for 16%. Mangudya’s remarks on the issuance of the gold coins is a departure from what a member of the bank’s monetary policy committee (MPC) had said when the IMF recommended the removal of the gold coins.
In December, an MPC member Persistence Gwanyanya said the committee never viewed gold coins as a “silver bullet” but “necessary intervention at the time” and that there was a ceiling on the number of gold coins to be issued.
“That’s why by 22 November, RBZ had only issued 14 200 gold coins worth ZWL$13.6bn. The target was always to issue a maximum of 15 000 gold coins that’s why the IMF agreed with the authorities to wind down issuance of the same,” Gwanyanya told Business Times in December.
He added: “Having achieved a measure of stability the focus is now on attractive ZWL investment instruments to anchor our currency.”
The central bank says the combination of tight monetary policy through high policy rates and the liquidity-mopping effects of the gold coins and the foreign exchange auction system played a pivotal role in achieving price and exchange rate stability in the economy.
The issuance of the gold coins has also spawned new investment assets with asset management firm, Bard Santner Markets last month unveiling the gold coin unit trust offer investors an inflation-proof asset. The underlying asset of the unit trust is the Mosi-oa-Tunya gold coin. The asset manager said it had turned to gold as it is a defensive asset and withstand market and exchange volatility prevalent at the material time.
An IMF spokesperson said the global lender could not comment on the gold coins outside its announcement in the Article IV consultation report pending the meeting of the board.
“Please note that staff is currently reviewing the latest MPC statement and will update its analysis in the context of the Article IV staff report,” the spokesperson said.
Economist Gift Mugano said the gold coin will never ensure confidence of the local currency as an insignificant share of money supply has been absorbed by gold coins. The central bank says ZWL$20bn has been sucked by the gold coins.
He said the gold coin is not easily convertible by virtue that it will be locked for six months.
“It is a misplaced instrument because we cannot rely on it,” Mugano said.
He said confidence in the local currency will be strengthened by increasing production.
“When we say the American dollar is the preferred currency, we ask ourselves why? America is one of the most productive countries in the world. If you are a productive economy, you are a competitive economy. You can guarantee currency stability. In our case we have a drought in production and that is why we are importing tooth picks, chewing gums and diapers,” he said, adding that policy consistency will also anchor the strength of currency.