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All That Glitters Is Not Gold- Understanding Zimbabwe’s Gold Coin


Shakespeare in the play, the Merchant of Venice used the idiom, ‘all that glitters is not gold’ arguing that what shines and is sparkly can be too good to be true. On the back of spiraling inflation, the Reserve Bank of Zimbabwe (RBZ) in cohort with the Government of Zimbabwe has plans to introduce gold coins by the end of July. This article will look at how the gold coin will work, what impact will the gold coin have, will arbitrage still exist, analyze the complicated, bloody matter of gold production, how gold possession is still criminalized in Zimbabwe and provide a comparative analysis with South Africa’s own gold coin, the Krugerrand.


At the end of June, during a press conference, the Minister of Finance, Professor Mthuli Ncube announced that plans were well underway to introduce a gold coin. RBZ in their July 4th press statement laid out that the gold coin would be called Mosi-Oa-Tunya Gold coin, weighing one troy ounce, with a purity of 22 carats. One troy ounce at current gold market rates is about $1750/ounce. This is a small but important fact. The average monthly income in Zimbabwe hovers around $50 meaning that most Zimbabweans would need to save for nearly three years to get their hands on one gold coin. An option that government does have is to fractionalize the gold coins and sell smaller gold coins with values of a tenth, quarter or half of this price to make them more accessible. This is unlikely to happen primarily because the structure of this gold coin plan was never meant to support low-income families or pensioners to protect their earnings against rampant inflation, but to appease high-net-worth individuals and companies.


The price entry point of one gold coin effectively eliminates at least 90% of the population from being able to afford the gold coin. The targeted demographic is middle to upper-class Zimbabweans, high-net-worth individuals, and corporates who already dominate the demand and supply of currency. Among this elite, there is a lot of doubt they would be allowed to hold the actual gold. RBZ seems to have made it clear that a person/corporate will be allowed to take physical possession of the gold. A buyer of gold will then be provided with a certificate to prove ownership. This is all well and good but it is common knowledge that gold since colonialism has been a state resource which as stated in Sections 3 read along with Sections 13, 14, and 15 of the Gold Trade act, makes it illegal to have gold in your physical possession. Changes to this act are therefore needed.

Opening possession of gold is in itself a very complicated matter because of the structure of Zimbabwe’s mining industry. The gold industry in Zimbabwe has a high level of artisanal miners popularly known as makorokoza. As a result, the industry is very violent and prone to huge illicit flows of gold. Since 2008, gold production has ramped up to Zimbabwe being on average a top 25 global gold producer with artisanal miners providing a significant chunk of that. De-criminalizing gold possession could help reduce the levels of violence but that is premised on artisanal miners and the rest of the gold industry stakeholders knowing that they will get fair market prices for their gold from RBZ and other buyers.


This leads us to the main reason that the gold coin is being introduced in Zimbabwe which is a matter of gold is seen as a store of value. The Zimbabwe Dollar’s rampant inflation of 377% has had the government running around trying to see how they can convince high-net-worth individuals and corporates that the Zimbabwe dollar has and holds value and to try to reduce the demand for the US Dollar. To be fair, the US Dollar is also suffering from relatively high inflation of 8.6% (I laughed in Zimbabwean as I wrote that) so even on a global scale, gold is seen, although not always true, to be a hedge against inflation. RBZ says that the gold coin will have, “liquid asset status, that is, it will be capable of being easily converted to cash and will be tradable locally and internationally. The coin may also be used for transactional purposes.” Some people might read this to mean you can buy gold and go use it to buy cooking oil in a supermarket but that is highly unlikely. The likeliest scenario will be going to the bank and changing your gold for cash.


However, RBZ is insisting on keeping the Zimbabwe Dollar price fixed to the official interbank rate which is about 50% less than the parallel market rate against the US dollar. This creates a huge opportunity for arbitrage which has been occurring since the commencement of the Auction System but this time, gold will be involved. This fact read along with how complicated it might be to de-criminalize gold possession leads us to believe that only the existing elite will be allowed to buy gold when RBZ starts selling coins.


A case in point is RBZ recently shelved plans to privatize Fidelity Printers and Refiners which is currently the only entity legally allowed to buy gold in Zimbabwe. The plan was to sell about 60% to major gold producers and organized artisanal miners. This would have meant that gold producers which include tycoons such as Mr. Kuda Tagwireyi would have directly controlled the gold supply chain. Currently, Mr. Tagwireyi through his ownership of ZB bank operates as Fidelity Printers and Refiners sole gold buying agent in Bulawayo, Bindura, Chinhoyi, Gwanda, Gweru, Kadoma. Kwekwe and Masvingo. Moreover, the Government owes another of Mr. Tagwireyi’s banks, the Commercial Bank of Zimbabwe, substantial amounts of money due to farmers defaulting on the Command Agriculture Programme. Through these two banks, Mr. Tagwireyi will be able to buy substantial amounts of gold coins in Zimbabwe dollars which is effectively a 50% discount, and then sell the gold for US dollars.


The selling of gold coins to the public is not a novel idea. South Africa sells the world-renowned Krugerrand gold bullion coin, of which 60 million coins have been produced since its launch in 1967. Other countries also have gold coins such as the American Gold Eagle, Canada’s Golden Maple Leaf, Australia’s Kangaroo, and China’s Panda. The features that the government is adopting or should adopt are already found in the Krugerrand. This includes fractionalized gold coins to make them cheaper and therefore accessible, de-criminalized possession of gold, and their tradability. The one asset that is still lacking from the proposed gold coin is trust in the government.


Zimbabweans have already started to believe that the gold in the gold coins will not be pure (unlikely) or questioning what stops the government from waking up and confiscating all gold in bank vaults as they did with the US Dollar in 2019. The truth is very little. One could argue that impending elections might function as an incentive for the government to not make any rash economic decisions but that is not the case. The other opposing force is the other elites which are central to government keeping power, namely, tycoons like Kuda Tagwireyi or more critically, the military. We can assume that to maintain political power, the introduction of the gold coin will be promulgated to ensure that the wealth of elite stakeholders is stored in a safe haven, not the US Dollar but rather gold extracted violently in the unregulated minefields and with very little benefit to the poor who more than anyone else in Zimbabwe are seeing their wealth disappear as the Zimbabwe Dollar turns into paper only useful enough to light the fire at night.

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