Explained: Why Has Zimbabwe Introduced Gold Coins As Legal Tender

Zimbabwe has launched gold coins to tackle the soaring inflation in the country. The Reserve Bank of Zimbabwe, the country¡¯s central bank announced the move and also distributed 2,000 coins to commercial banks.

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After the annual rate of inflation rose above 190%, the interest rate of the central bank more than doubled to 200% this month.

Why did the state introduce gold coins?

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Zimbabwe has tried several ways to fight the inflation it has been experiencing for almost a decade. Zimbabwe's dollar dropped in value against major currencies this year.

This resulted in the black marketing of US dollars by citizens of Zimbabwe. This move is taken to control the illicit commerce in the country.

Further, International investors can use gold coins as a form of insurance against inflation and conflict.

Inflation has severely impacted the country¡¯s economy and its population. Also, the trust factor in Zimbabwe¡¯s currency has lost after people witnessed how their savings were wiped out during hyperinflation in 2008.

The country recorded 132 % inflation in May. Thus, this step is taken by the authorities to improve the picture and stabilise the economy.

The coin is called "Mosi-oa-Tunya"

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The coin is called "Mosi-oa-Tunya" which means "The Smoke Which Thunders" and refers to Victoria Falls in the local Tonga language. The coins will have liquid asset status so that they could be easily converted to cash and locally and internationally tradable.

The central bank said in its announcement that the coins ¡°may also be used for transactional purposes¡±.

Who can buy these coins?

According to the official announcement, Individuals or companies can purchase these gold coins from banks and other authorised outlets. The coins can be kept at a bank or brought home. Further, Foreigners are also allowed to purchase coins only in foreign currency.

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The coin holders can trade them for cash only after 180 days from the date of buying.

John Mangudya, Governor, Reserve Bank of Zimbabwe stated that the first batch was not minted in the country but gradually, they will be produced in the country.

Who will decide the price?

The price of the gold coins will be determined by the international market rate for an ounce of gold, with an additional 5% cost of production of the coin.

Mangudya informed that the ¡°22-carat coins can be used for purchases in shops, depending if the shop has enough change, as well as security for loans and credit facilities.¡±

The cost of one coin was $1,824 at the time of launch.

The economic chaos in Zimbabwe

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The central bank of Zimbabwe recorded an inflation rate of 200%. Russia¡¯s invasion of Ukraine also contributed to the situation as it resulted in an increase in global commodity prices in the world including Zimbabwe.

Inflation in the country rapidly increased from single digits in 2000 to 114% in 2004, which further rose to 157% in 2008, and then peaked at 558% in 2020.

The reasons analysed in The Conversation report are a monetary expansion that is not supported by economic growth. In this situation, the economy had more money but fewer goods and services. Consequently, a fall in purchasing power and an increase in prices.

After independence in 1980, the central bank of Zimbabwe managed to control the prices and inflation ranged between 10% and 20%. While in the 1990s, the economy started crumbling after a land reform programme was introduced by the government.

Under the land reform programme, the land was redistributed from the white minority to the majority of black Zimbabweans who had been disenfranchised under the colonial period.

Poor implementation and senior officials' corruption failed the programme. It resulted in a sharp decline in agricultural output, which was a significant source of exports, foreign currency and employment.

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At the same time, a sudden drop in tax revenues was recorded with the contraction of the economy, prompting the government to finance higher spending by printing money. This move accelerated inflation in the country.

In the 2000s, Zimbabwe experienced hyperinflation, leading to ¡°the weakening of the local currency and triggering a de-anchoring of inflation expectations.¡±

In 2009, the government decided to replace the Zimbabwe dollar with the US dollar. The decision helped in quelling inflation until 2018 when a new local currency was introduced.

But, the new currency brought the second hyperinflation in the country. The people of Zimbabwe lost confidence in their currency and preferred the US dollar as currency, even after the new local currency was in circulation.

When the situation worsen, the government stopped publishing official inflation figures but one estimate showed the inflation rate at 89.7 sextillions per cent on year in mid-November 2008. It is said that the one hundred billion Zimbabwe dollar banknote was seen as an emblem of the nation's economic collapse during that time.